business owner cash tax irs report?
29.September, 2009
Okay my question is little complicated. Do a business owner have to report their income if one of their customer pay their service in CASH? How is IRS going to find out? For example, a hotel owner recieve cash, a restaurant owner recieve cash, a bicycle rental owner recieve cash……etc. and they put their cash in their own PERSONAL safe. I can’t think of a way where the irs can find out…….
ooh yea but the business has to make money some way they just report their sales on CREDIT card sales, personal checks and SOME of the cash not all……
Currently, I LOVE the three answers so far…very thought provoking. One of the answer talks about transfer to the bank. Please remember the business owner place it in his PERSONAL safe. For the other answer with Mercedes…true true. However, he/she can spent on not obvious thing such as food, clothes (in trust in me he can spent alot without anything too obvious), eating out, etc. IN HARD COLD CASH….so there is no way IRS can catch it. The gentleman with the long answer……I 100% agree and auditor is the best way…….thanks your answer is the best so far……
Yes, all income must be reported.
The IRS has many ways of sniffing out tax cheats. Some of them are pretty creative. A number of years ago a group of IRS agents used to get together for lunch at a popular hotel’s restaurant. They noted that many of the wait staff seemed to be getting some pretty generous tips from their customers and wondered if that income was being reported. Back at the office they started pulling tax returns and discovered that few of them claimed any tips at all and those that did didn’t claim very much. They launched an investigation that lead to a number of prosecutions for tax evasion and the collection of hundreds of thousands of dollars in taxes, penalties and interest from the employees and the hotel. (The Head Sommelier and Maître d’ were estimated to be pulling in over $100k each per year in tips alone!)
For your hotel, consider this scenario: IRS agent checks in and spends a couple of nights and pays cash. Maybe does this 2 or 3 times throughout the year. When the tax return is filed, it gets pulled for audit. Agent asks for cash receipts journal and zeroes in on the dates in question and sees $0. BUSTED!
It’s unrealistic for most businesses to operate solely on a credit or debit card basis. Most businesses take in some cash in the course of doing business with rare exceptions. The IRS knows the statistical norms for different types of businesses based upon past audit findings. If your business shows receipts outside of the norms, you may be asked to prove your figures with detailed business records.
They might not catch the occasional ten-spot that gets pocketed without being rung up but any significant pattern of unreported cash transactions will be caught by a seasoned examiner. If money is coming IN, then just as surely is going OUT as well. If those don’t match up pretty closely, BUSTED!
29.September, 2009 um 12:49 pm
Yes, all income must be reported.
The IRS has many ways of sniffing out tax cheats. Some of them are pretty creative. A number of years ago a group of IRS agents used to get together for lunch at a popular hotel’s restaurant. They noted that many of the wait staff seemed to be getting some pretty generous tips from their customers and wondered if that income was being reported. Back at the office they started pulling tax returns and discovered that few of them claimed any tips at all and those that did didn’t claim very much. They launched an investigation that lead to a number of prosecutions for tax evasion and the collection of hundreds of thousands of dollars in taxes, penalties and interest from the employees and the hotel. (The Head Sommelier and Maître d’ were estimated to be pulling in over $100k each per year in tips alone!)
For your hotel, consider this scenario: IRS agent checks in and spends a couple of nights and pays cash. Maybe does this 2 or 3 times throughout the year. When the tax return is filed, it gets pulled for audit. Agent asks for cash receipts journal and zeroes in on the dates in question and sees $0. BUSTED!
It’s unrealistic for most businesses to operate solely on a credit or debit card basis. Most businesses take in some cash in the course of doing business with rare exceptions. The IRS knows the statistical norms for different types of businesses based upon past audit findings. If your business shows receipts outside of the norms, you may be asked to prove your figures with detailed business records.
They might not catch the occasional ten-spot that gets pocketed without being rung up but any significant pattern of unreported cash transactions will be caught by a seasoned examiner. If money is coming IN, then just as surely is going OUT as well. If those don’t match up pretty closely, BUSTED!
References :
29.September, 2009 um 1:05 pm
You’re almost right. But if that cash is substantial, then there could be unexplainable cash flows (deposit balances, purchases, etc.) that cannot be explained by the businesses reported income, and that will catch the attention of the IRS.
Example: your business made $15,000 but somehow you managed to buy a new Mercedes.
References :
29.September, 2009 um 1:51 pm
But what are you going to do with that cash once you get it, always keep it in a safe (or under your mattress)? Cash deposits or transfers might be reported to the gov’t as suspicious activity, even at much lower amounts than the $10k some people mistakenly think it is.
Financial institutions are required to report possible suspicious deposits or transfers to track possible illegal activities, money laundering, income tax evasion, terrorist funds, etc. You could wake up one day and find your bank account(s) frozen (as other posters have).
References :