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greatlawns
08-16-2007, 01:16 PM
I have a theoretical question for everyone. I haven't done this, but figured that some of you have experience with it, so you may have some insight.

Is it legal to pay someone cash for helping you out (even if it is a significant amount, i.e. over $600) and is that acceptable to the IRS? I mean if you do that, I guess you have 2 options. One is to give the person a 1099 as a subcontractor (though technically they are supposed to have their own business with their own insurance to be considered a subcontractor) at the end of the year. or Two, pay them straight cash (or check) and not claim that money that you paid them as a deduction with the IRS. Or can you?

I know companies that pay people cash/check, but don't take out taxes and don't 1099 them at the end of the year, so they technically have no employees, but how do they do this legally?

What do you all do?

nobagger
08-16-2007, 01:50 PM
YES! Its ILLEGAL! You cant claim one of your guys is a sub contractor if he is using your equipment. For plowing and sidewalk snow removal you can 1099 them because its their equipment and time. Talk to an accountant thats the easiest way to find stuff like this out.

Fantasy Lawns
08-16-2007, 01:55 PM
"Technically" ... they are breaking multiple laws (Federal, State & Local) .... & leaving themselves open to liability issues as well (Damages & employee injuries)

One ....just one pissed off ex-employee can .... make a simple 1-800 phone call n really change that persons future

Oorrr .... one .... pissed off Competitor

You can pay em cash ....BUT ya gotta take the taxes out

greatlawns
08-16-2007, 02:16 PM
Yeah, I use ADP for my employees, but you always hear stories about companies paying cash...I just don't know how they get away with it. More importantly, it makes it more difficult for companies that do it the right way.

tthomass
08-16-2007, 09:49 PM
You'll throw a flag if you are making money and can't show where it went come tax time.

Now, slipping a cash tip to your help every once in a while as many of us probably do.......thats different then a salary that is cash.

GraZZmaZter
08-17-2007, 04:42 PM
Technically .... i am nervous responding to this post .... this is a NO NO ... a big one ....

varybarry
08-17-2007, 04:57 PM
Definitely see your accountant as soon as possible, if you are considering this. I'm sure they will have a list of laws to show you.

TSG
08-17-2007, 06:57 PM
This is actually pretty easy
First you have to know if legally they are employees or Subcontractors.
99% are legally employees becuase they do not pass at least 1 of the 3 "employee rules"
If Employee you must withhold tax, but you can pay him in cash,,,,,don't know why you would.
If he is an employee and you treat him as as a sub and 1099 him, he could come back to haunt you later.
If you pay cash and don't withhold you can't take the deduction.

In my area there is a lot of cash flying around because employers think it is cheaper than matching withholding, increased workmans comp, ect .
The employees won't say anything to anyone because they are often on welfare
or receiving some kinds of government assistance.

Talk to an accountant
He will save you more $$$$$
and you won't have to loose sleep over it

LB1234
08-18-2007, 09:33 AM
Not to mention the whole workmens comp audit that could come back to bite you in the arse.

You may be paying him cash lets say its 1k per week over 30 weeks or 30k. You 1099 him at the end of the year. Then your WC insurance decides to audit you (mine does every spring) and you show your 1099s. They will then verify if your "subcontractor" has WC insurance...if not guess who is responsible? Yep, you got it. We pay 12 per 100 of payroll. that means I'd owe $3,600 to start the following year.


Just happened to a buddy of mine but he owes $21,000.00.:cry: :cry: :cry:

Turfbarber
08-29-2007, 02:17 PM
You can pay with as an "independent contractor." You have to have an independent contractor agreement in writing first, similar to the ones realtors use with their brokers. You can then pay them cash and declare it on your taxes. The independent contractor must then pay the tax on it. I've done it several times. My attorney actually supplied me with the form ten years or so back and my accountant said it was fine. Unless something has changed back them, I did it for about a season until I could get my own plowing equipment.

zz4guy
08-30-2007, 09:46 PM
I have a theoretical question for everyone. I haven't done this, but figured that some of you have experience with it, so you may have some insight.

Is it legal to pay someone cash for helping you out (even if it is a significant amount, i.e. over $600) and is that acceptable to the IRS? I mean if you do that, I guess you have 2 options. One is to give the person a 1099 as a subcontractor (though technically they are supposed to have their own business with their own insurance to be considered a subcontractor) at the end of the year. or Two, pay them straight cash (or check) and not claim that money that you paid them as a deduction with the IRS. Or can you?

I know companies that pay people cash/check, but don't take out taxes and don't 1099 them at the end of the year, so they technically have no employees, but how do they do this legally?

What do you all do?

If you can get away with it go for it.

But it is doubtful you can get away with it he's your full time employee. Either he is going to be reporting $0.00 income or, if he does report income, you will not. In which case the IRS will audit you.

If he is a part time guy you should be able to pay him cash out of your own pocket and be safe. But its a risk not having workmans comp if he gets hurt. All depends on who you hire. Talk it over with him.

TSG
08-30-2007, 10:48 PM
You can pay with as an "independent contractor." You have to have an independent contractor agreement in writing first, similar to the ones realtors use with their brokers. You can then pay them cash and declare it on your taxes. The independent contractor must then pay the tax on it. I've done it several times. My attorney actually supplied me with the form ten years or so back and my accountant said it was fine. Unless something has changed back them, I did it for about a season until I could get my own plowing equipment.

Agreement or no agreement
If they don't qualify for the rules stipulated by the IRS, they are employees.
Do they use your equipment?
Do they follow a schedule established by you?
Do you directly or indirectly control how and when they do their work?
Do they work for other people?
Do they file a schedule c , are incorporated ?
If you answer yes to 1 on them they are employees.
Get a second opinion from a second attorney
An independent contractors agreement usually only stipulates who is responsible for what and you are responsible regardless of weather he keeps up to his end of the bargain.
Alan

Turfbarber
08-31-2007, 05:04 AM
I agree to consult with your attorney. I got away with it back then, but the guy used HIS equipment. He worked for me as an employee in the mowing season with my equipment, then plowed for me as an "IC" with his equipment in the winter. I am not sure the equipment is the stickler though since realtors do not use there own equipment. Most or all is provided by the broker. I know it's kind of an apples to oranges comparison and even though we are talking federal withholdings, laws can still vary some by location.