Paying In Cash? Careful, It Can Mean Jail Time


Paying for things in cash can be desirable, but it can also cause tax problems. Tax attorney Rob Wood discusses the difficulties in this report, based on his Forbes article “Paying In Cash? Careful, It Can Mean Jail.”

Rob Wood

Rob Wood

Paying in cash can be tempting to small businesses, especially. One kind of business that comes to mind, says Wood, is medical marijuana companies. These small businesses often have difficulties with banking relationships and credit card companies. These are largely cash businesses. But they still have to pay taxes.

If you pay your employees in cash, you need to remember withholding taxes. Wood points out in his article that the IRS takes employee withholding taxes very seriously. Much of the money withheld will end up in the hands of the IRS, so the agency is very sensitive on this issue.

Cash transactions make recordkeeping more difficult for the company bookkeeper. And for employees in service industries, much of their compensation comes in the form of cash tips, which need to be reported. Wood notes that people who receive cash and spend cash may be able to “live off the grid,” but it can be dangerous, and the IRS will be looking at the possibility that income is being under-reported.

Wood also points out that there are special cash reporting forms that taxpayers need to be aware of.

Cash can lead to problems where people try to engage in transactions in cash that are either under-reported or not reported at all. Wood mentions a sting operation some years back that involved car dealerships. The IRS ran the sting and succeeded in catching several dealerships.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.