So much talk on the forums of paying “people” in cash – and implying ( I guess) no records kept on the cash receiver, about how much they were paid.
Is the giver of the cash still taking the cash as a tax deduction / business expense and fooling the cash receiver into thinking its a secreat from the IRS?
Seems the cash givr would need the tax deduction of recording the cash given as a business expense!!
Framing the floor inside a crawlspace foundation keeps a gable-end addition close to grade.
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Replies
Are you talking about cold hard cash only, or does a check payment fit into your question?
cash/currency/ money no checks etc
Think of it. What builder or remodeler would make it through a tax audit with substantial cash disbursements showing up in his expenses? What explanation could be made for the cash outlays?
Under what circumstances do you think the payer can legitimately claim cash outlays as business expenses? Washing the truck? Bridge tolls?
Any necessary and ordinary business expense is deductable no matter how paid, cash check or trade. Likewise business income is taxable no matter how it is received, including INTRADE and CASH.
And in either case (income or expenses) if audited it depends on the totality of the available records.
For example a fast food restraunt in mostly cash (and until recently all cash). But if the records show that enough hamburger and buns where bought for $10,000 in sales, but only $3,000 income was shown you would be in deep do-do.
And on business expense say that you always bought gas for cash and you had a regularly updated register show purchase of gas at an amount approriate for the vechicle along with other business purchase which where paid by check or CC then there would not be much question.
But if the only record you had showed a total of $2500 at the end of the year it would be highly questions.
well, there are 1099 forms -
many years ago when I was young and clueless, I paid a man for some work - don't even remember what it was - but I do remember when he came and had a talk with me after he recieved his 1099 the next january -
a failure to communicate -
The tangled web we weave. ;-)
Of course no one I know does this, but if you take in a lot of cash, you have to get "rid" of some of it too. Know what I mean.
"Let's get crack-a-lackin" --- Adam Carolla
To help you out you can send me any of your excess cash.Anything that I can do to help out my fellow mankind.
>>"To help you out you can send me any of your excess cash.
>>"Anything that I can do to help out my fellow mankind.
You are too kind.
If only. ;-)
I won't take cash (says so in all my contracts so nobody can say they gave me cash) and I usually won't pay cash (makes it harder to establish a paper trail for deductions). Only way I will pay cash is if I have some other document in hand that shows what was done for how much and the guy getting the cash signs it paid in full (haven't been audited since I was in school and I hope to keep it that way).
I do "know of" people who do a lot of business in cash (if the IRS is listening -- nobody I know, just rumors and urban myth ;-). When you take a lot of cash off ledger, you tend to have to pay a lot of cash off ledger. It has to go somewhere -- with no real paper trail either way. ;-)
"Let's get crack-a-lackin" --- Adam Carolla
I wouldn't get into it. Do everything on the books, with invoices, receipts, and proper documentation. If someone wants you to help them cheat, what's to say they won't stab you in the back next. Or an audit of their business leads to yours.
But, yes, they can deduct the expense they paid as a legitimate business expense but would have a hard time substantiating it in an audit if they have no invoice to show nor check drawn on their business.
"if they'll lie for you, they'll lie to you."
The guys who like to pay in cash also like to be paid in cash. Therefore, the payment they receive is not shown as income and the payments they make are probably not shown as expenses.
A person who is paying in cash for something that would otherwise be an easily-documented deduction will probably expect to pay substantially less under the table than above-board. They can therefore justify not using the deduction.
Naturally, you're not trying to cheat on anything, right?
Edward, I'm sure there are a lot of people taking cash and not reporting it, then paying in cash and not reporting it.
That is illegal.
We pay in cash and get discounts to do so, but we get contracts and waivers signed too. And we send out 1099's on the money.
Since we send out 1099's, we are entitled to deduct the cash outlays as a legitimate business expense...which it is. Cash is still legal tender.
I can't even begin to explain why someone would offer a discount for cash. Logically, it makes no sense. Occasionally, If I'm in a negotiating mode and I've padded a bid high in anticipation of giving a discount, I'll offer a discount for cash, but we put it in the books anyways.
blue
Someone offering a discount for cash cannot be figuring on having it reported to the IRS via the 1099.
Someone offering a discount for cash cannot be figuring on having it reported to the IRS via the 1099.
That's not necessarily true Gene. I am the proof. I will offer a discount for cash in certain negotiating sessions, and I know I'm going to report it to the IRS. I wouldn't like to think that someone has the drop on me.
blue
i agree.... if you receive cash.. you shopuld assume that one way , or another, it will be reported to the IRS.. either thru Audit, 1099, or someone with a grudge.. or caught between a rock & a hard place
if this is a wink-wink transaction, then you have to remember that you have entered into a partnership with someone who is trying to defraud the govt.
is this someone you want to be partners with ?
same thing holds true in all our dealings..
i used to have an excellent painter .. a real whiz... he always worked for me on a bid basis.
but he would constantly complain about this other contractor he worked for and how he had to keep his rates low for T&M work.. so he padded his hours to make up the difference..
after that i stopped calling him for work
another example... guys helping themselves to small items.. if i notice it, i have a conversation with them .. about building and maintaining trust.. if i see expendable items going home with them.. what else can i expect them to do ?..
ie: if they lose my trust for a dollar... then they've certainly lost my trust for the bigger items..
this is similar to the thread about customers lying to us... customers who want to do a cash transaction always get told that it's no matter to us how they pay.. cash is fine, but it all goes on the books... and , just by them making the offer, i make a note in my mental register that this person is willing to cheat someone else ( Uncle Sam ).. therefore they're willing to cheat meMike Smith Rhode Island : Design / Build / Repair / Restore
just by them [customers] making the [cash] offer, i make a note in my mental register that this person is willing to cheat someone else ( Uncle Sam ).. therefore they're willing to cheat me
With all due respect, perhaps this is your experience, but I offer cash for other reasons. From a business owner's perspective, credit cards often come with a discount rate fee of 2 to 3 percent and thus cost you. Checks can take a few days to clear and inherently include some risk of bouncing (hopefully not, but the risk is still there), and potentially can mess with a smaller business' cash flow if this were to occur.
This is not to say that an offer of cash may not be for questionable motive and unscrupulous intent, but labeling someone a cheat on this information alone may be shortsighted.
Just my two cents (cash).
Yeah, I see noting wrong with cash so long as a receipt is provided and all the appropriate (for the specific situation) paperwork is done. You can't be responsible for what the other party does. There are lots of folks who don't like to use checks or credit cards.
If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy. --James Madison
I think everyone knows that when they pay a guy to thatch theri lawn or aeriate it and pay them with a check or cash, there is a good chance that at least half of the time the money ends up in teh pocket never to see teh light of a Schedule C. If teh guy writes you a recipt then teh reciept book is likely to be a documentation of the transaction adn therefore a clue that the guy will report it.
But there is a hugh hole in which these check and cash transactions can and often do fall!
In the case of contractors, teh contractors are likely to report check and cash payments, but unless the contractor prepares and files a 1099 (as several here have mentioned) the guy on the recieving end has almost a zero chance of getting caught by the IRS if he does not declare teh money. And again I would bet that a large majority of guys paid in cash and even checks don't report all or any of the money.
that's the part I've never understood in all these discussions.
If I pay cash and don't 1099 ... I'm paying the tax on that money out of my own pocket.
so ... the cash is taxed ... not like I can hid the fact that I started with the money.
and if I paid the laborer cash ... chances are .. I'm being taxed at a higher rate than him .... so it's actually being taxed at a higher rate.
I don't see what the big deal is is the guy at the end of the cash handout didn't report it. It's reported from the beginning ... it's being taxed.
only one losing is the guy who didn't 1099 who ever they paid cash too.
jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
"not like I can hid the fact that I started with the money."
Well, you can get the customer to pay you cash, then pay the helpers cash too. Then you're 100% cheating and the tax man doesn't get his... unless he catches you somehow, and then he gets his in spades.
"If I pay cash and don't 1099 ... I'm paying the tax on that money out of my own pocket.so ... the cash is taxed ... not like I can hid the fact that I started with the money.and if I paid the laborer cash ... chances are .. I'm being taxed at a higher rate than him .... so it's actually being taxed at a higher rate."Not exactly.If you look at the catagories on a sch C, including the famous line 28 "other", you will find that none of them specifically referst to sub-contractors. There is no matching of 1099's SENT.And even there there a legal reason not to send a 1099. Such as under $600 or the sub-contractor is a corp.And the same hold true for income. There is no requirement for a HO to issue 1099's.So anyone can put anything on the sch C and it is "completely 'legal'" until that person is audited and has to verify the income and/or expenses.So untill
I got paid a large check that had taxes withhold on it. I claim this on schedule C without a 1099. They went crazy, said I owed a lot of taxes and had penatiy. Told them it was withheld. didnt matter, pay first and then we discuss at our leisure. Took eight months to solve. They would not let someone local to handle. Through the mail
Actually there are two different types of "taxes withheld".One is FICA and income taxes are dedcuted.The other is "backup witholding" which is used when a SS is not given and I believe when the IRS tells them to because the taxpaper ahs not been paying.If it is the former then either they should not have beein witholding taxes or it was not business income and should not have been put on a sch C.If it was the latter then you would not have any record of the withholdings as that comes with the 1099.Lots of business report income without a 1099 and that does not rasie red flags with the IRS.
Apparently if you want to hide money and avoid paying taxes you have the wrong accountant. It's easy to be honest no mater what the method of payment... I have seen a thousand ways to entirely hide or at least skim some off the top. The real kicker is I've seen total idiots that get 1099'd for over 100k with no write offs, pay no estimated taxes and have Uncle Sammy send them a check for 3 grand at the end of the year. It's not right but it happens all the time because the system is so screwed up.
Bottom line is small time tax fraud isn't pursued, but the average person, me included, is scared to death that the man will come knocking. If you don't believe me take a chance... next year send your taxes in postmarked april 16th.... the silence will deafen you.
I am not sure what you are trying to say. ARe you saying that if you don't prepare a 1099 you also don't report the cash payment as part of your expenses?
But why would you do that?
If it were me, I would prepare teh 1099s. If I did not prepare the 1099, I would still document the cash payment and show it as an expense on my taxes anyway. Sure that could be a problem if I were to be audited, but I would gamble. But then again, I would prepare 1099s. If for no other reason than to see to it that teh guy I paid thought twice about not reporting the income. Everyone should pay their taxes.
I'm saying ...
Contractor A gets a big check from HomeOwner.
Contractor hired SubB.
Contractor A pays SubB a handful of cash.
For what ever reason ... ContractorA does not 1099 SubB.
So ... whether or not SubB claims that handful of cash ...
ContractorA is still going to pay taxes on that handful of money.
If U pay cash ... and don't 1099 the illegal alien who just mowed your lawn ...
That cash is still going to be taxed ...
and chances are ... ContractorA is taxed at a higher rate than SubB ...
That's all. Not a big issue to me ... just never understood why everyone around here always got so upset with the idea.
Me ... I'm not big on saving people tax money ... so I send out 1099's early and often.
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
SubC is a corp.Contractor A pays corp in cash.No 1099 needs to be sent.Contractor A still deducts the payment as business expense.
stop trying to complicate things.
just follow my little story there ....
at the end ... taxes have been paid. Just by someone other than the last fist holding the fist fulla cash.
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
Jeff, that's what I've been saying all along with the illegals.
blue
same when they work with a fake SSN ...
it's with held ...
but they never file a return to get it back.
I'm a big believer that that is why the Gov ain't so big on reform ... the Gov is raking in the money.
their bennies cost too much ... fine .. just raise taxes. Getting it on the front and back side.
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
But getting caught is possible. The painting contractor who painted our house is now in prison--actually--for unreported cash income. This included income in the period following him being informed that the IRS had asked about records we had about cash payments. It can't happen to me sometimes does.
Sure it does! Sometimes.
But, let's face it. Let's be realistic. It is pretty darn easy.
Kids mow your lawn. Do they do that any more? Report that to the IRS, are you kidding? A guy buys a lawn aerator and does lawns on the side. REport it? Well, maybe if he is smart he has a receipt book and issues one out of two jobs and reports those. A guy cuts firewood, five to ten cords a year. Does he report it?
Well, I know for a fact there are dozens of people around me that do it. It is obvious it is easy. And yes if you are big enough and file some kind of return you might get audited, but even then it is pretty near impossible for an auditor to prove a negative (to prove there is more income than that which is reported).
But it is a free country and people can chose to beleive everyone is honest.
But do you realize how LITTLE tax income the government loses for those examples vs the big players with the fancy tax accountants and the offshore accounts?
If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy. --James Madison
Oh the myths come out. The rich don't pay taxes. Care to explain any details? I bet you don't. Why? Becaseu you don't know of any. So it is easy to just say "the rich hire accountants adn don't pay taxes". I still say Yetis live in Central Park. Details? Oh ah ..... I don't need any. It is just a fact! They live there. REally.
As for how small the tax cheats are? Well Gee teh government estimates the underground economy at something like 300 billion. Yeah, small stuff.
The problem is it just isn't true that the rich evade taxes more than lower income people. In fact it is the reverse. (Now this isn't the same as saying the rich pay more taxes than lower income people, they have more legal means of avoiding taxes, and very roughly pay about the same percentage of income as lower income groups.)
And, the largest class of income which isn't reported comes from self-employment.
By the way, it's not that hard to make the case for more income. The auditor doesn't have to find the income, only to find the standard of living. Expenditures are fairly easy to trace. The IRS does know what a new F-250 costs.
Steve,
"The problem is it just isn't true that the rich evade taxes more than lower income people."
Exactly. I always laugh at people who say things like "The rich lose all this money in stuff so they can get more dedcutions". Huh? It is true that when marginal tax rates were 90%, and they were! Amazing but true. But it was true that under that situation people got make investments and turn ordinary income, taxable at 90% (FOR HIGH INCOME PEOPLE ONLY) into capital gains taxable at only 36% (still a higher percentage than most people at that time. Anyway, in the current day of margainal rates of only 35% there are far fewer ways to shield income.
"(Now this isn't the same as saying the rich pay more taxes than lower income people"
Well, that depends on what you mean by more. The facts are that the top 1% of income taxpayers pay somewhere between 36 and 40% of all income taxes. And the bottom 50 % of income taxpayers pay about 5% of all taxes. So the "rich" do pay more", they also earn more (duh LOL!)
"they have more legal means of avoiding taxes, and very roughly pay about the same percentage of income as lower income groups."
I would argue both premises. And again, it depends on what percenetage you are looking at. For example, people earning 1 million in salary each year pay SS tax on the first 90k, whereas most people pay SS on ther entire salary. How, a very very large percentage of people (families making less than about 40 k)don't pay ANY INCOME Taxes but do pay SS. And a very large number of people are only in the 10% or 15% brack.
"And, the largest class of income which isn't reported comes from self-employment. "
NO DOUBT.
"By the way, it's not that hard to make the case for more income. The auditor doesn't have to find the income, only to find the standard of living. Expenditures are fairly easy to trace. The IRS does know what a new F-250 costs."
This is true but that kind of tax fraud case has to end up in court, and does not come out in an audit. And it does take alot of work to determine if that F-250 was purcahased with under the table money. Some people buy trucks others eat out and take vacations. So the fact aht you have a truck is hardly enough. The type of stuff you are talking about is only for the grossest of tax fraud cases. Teh guy pocketing ten grand would never see any IRS guy looking into whether they eat out alot or go to Hawaii once a year.
I am sure taht many tax cheaters report 80% and pocket 20%. Pretty hard to find that kind of stuff. Not to mention that audits are expensive and the IRS wants the audits they do to pay. If they are looking for 5 grand they are wasting their time, and they know it.
The reason the statistics show the rich paying large percentages of total taxes is that the rich have at least as large percentages of total income, and even larger percentages of total wealth. But, as a percentage of total income, the total taxes of all income groups are roughly the same--within a few percentage points. That proportion of income for the rich has fallen a bit in recent years.
Somehow it seems different if taxes are 25% of $400,000 income compared to 25% of $40,000.
I agree that small amounts of unreported income don't get discovered, but what is the message from that. I reject the idea that it somehow becomes OK if others are doing it or that it is OK for lower income groups if "rich" people do it.
Have you ever heard of a bounced check? My mom always told me 1 in the hand is worth two in the bush! Hence the cash discount.I love it on here whenever someone says CASH the same people jump up and call him a tax dodger!
My thoughts were mainly about the news articles on the "contractors" who hire temp labor by picking them up on the street corner each morning at a daily rate- what do they do for the tax deduction? write down: Msc labor over 2 months, $x,000 dollars?
Cash payments are, of course, deductible; they are a legitimate business expense. But, when audit time comes around, or the accountant with ethics shows up, where are your receipts to prove what you've paid?
Professionals in the accounting, tax, and related businesses expect to have a paper trail that can be verified. Parking meters, tolls, etc etc are pretty small potatoes, and most accountants can accept that stuff. But if you have paid subs $25,000 in cash, and have no receipts, you'll probably have a hard time with that.
wonder how the guys that stop in the AM and pick up day laborores handle it?
IRS must be asleep?
Bottomline the IRS does a pretty good job of collecting taxes on the salaried-corporate guy and on taxes on dividends and interest. The rest is pretty much a blackmarket-underground economy and it is a crap shot depending on the honest, or as someone else mentioned, fear of the Joes in the trades.
Two reasons for scraping the income tax and replacing it with a consumption tax.
1. Just read this thread and see that the average guy has no idea what the heck is going on. The difference between FICA adn income taxes, 1099s adn W-2s, expenses vs . . . It is a mess. A consumption tax would scrap it ALL!
2. Secondly, for all of the above reasons, the underground economy evaporates and cheating goes to near zero.
And if you believe that I have some beachfront property for you in Olmsted County MN (the only county in MN without a natural lake).Changing the tax system just gives the cheats new challenges, and provides even more income for the tax lawyers and the guys who teach seminars on how to avoid taxes.And this is even before you factor in the fact that no tax system can make it through Congress without some special exemptions for favored groups.
If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy. --James Madison
No need to be a horse's ..., unless you are one and can't help it.
I never said I supposed such a change. But, you are naive if you don't think trades people, and millions of small business people don't steal hundreds of billions from most Americans by skimming cash.
I might ask you how many people avoid paying any SUBSTANTIAL amount of sales tax, as that is what a consumption tax is?
As for favoring a consumption tax over teh current system . . . I personally believe, like you, it would be a tough sell in congrss with all teh special interests trying to safe their special break. I also would bet that it would not be long before the Democrats insisted on bring the income tax back on top of the "new" consumption tax. More money in teh government till is always better for tehm.
Talk to someone in Europe about the VAT taxes. I don't know any of the tricks for getting around it, but there are apparently many of them. When you've got a 30% "sales tax" there's a lot of incentive to avoid it, one way or the other.
If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy. --James Madison
Well, I guess that is a pretty convinient, if not silly, arguement for you. "I don't know how, but I SAY SO that it happens all the time" I am convinced.
Gee, you want to sell me a bridge? Well, trust me I say a Yeti lives in Central Park. I don't know where he sleeps or what he eats, but . ...