I own a small painting business (my only source of income). I have about 60% of my customers who refuse to pay tax so they give me cash instead. I know this is wrong, but I don't want to loose my customers. What happens when I go to file my taxes (state and federal), and it shows as under $10,000 income for my entire family for the entire year?? I live in the same house as my family, so they pay most of the bills. (another story). Do I still have to file my income taxes as usual, and will I be putting up a red flag for lack of income?? I am loosing sleep over worring about this. Thanks for your time.
2007-12-12 01:04:07 · 6 answers · asked by Jill S 5 in Business & Finance ➔ Small Business
Think about incorporating the tax into the cost your charging customers, then they think they're still getting away with something and you won't have to worry about it next year.
2007-12-12 02:28:34 · answer #1 · answered by Anonymous · 1⤊ 0⤋
There's nothing wrong with paying by cash. In fact, that's good for you if your customers like to do that. It definitely doesn't stop you from paying taxes.
Keep records, that's most important. Not only so that tax time isn't one heck of a huge muddle for you, but so that you can defend yourself if need be. Declare the cash taken as tax too. There really should be no problem with income taxes. Those have nothing to do with your customers.
What I'm guessing is, you are expected to be collecting a sales tax, but your customers refuse to pay one? If they honestly refuse, pay it yourself. Absorb the tax yourself, record it and pay it. As long as you can physically afford it, taking the hit will save you a lot of worry and potential trouble in the future. Really though, every retailer faces the same tax, it isn't like you're at a disadvantage. Your customers know that you're a soft touch, and they're taking advantage of you. They know that they would have to pay the tax anywhere else, too, they're not doing you a favour here.
Either way, don't mess with taxes. The government protects its revenue fiercely. At least where I come from, it would raise a red flag and the authorities don't need any encouragement to make an example of someone. Not only do you get a nice fine that is way more than the tax value, you also get investigated and that's not good for anyone's reputation, business or personal. Seriously, if the revenue authorities want to have a go at you, they will win. Pay the taxes you owe, even out of your own pocket if you have to, and keep records of all transactions in order to protect yourself. Don't let customers con you into cutting them a deal, because it eats directly into your profit margin. Either you end up paying the tax out of your profits, or sooner or later the government will grab as big a fistful as it can.
Part of my job is filing taxes for other companies. Many of my clients are ordinary people, entrepreneurs and sole proprietors, who either filled something out wrong, turned in their return late, or didn't take it seriously. After getting dinged by the government, none of them ever want to touch tax forms again. Take it seriously, and if you feel at any stage that you're uncomfortable with what you're doing and aren't sure if you can defend yourself if questioned, seek advice from a professional accountant. At the very least, they can set up a good system that works for you and that you can maintain by yourself in the future. It's worth it.
2007-12-12 01:23:58 · answer #2 · answered by The Camel 4 · 1⤊ 0⤋
Even though it is cash, you still report it as income. It will not effect your customers. Be sure to keep track of evrything you take in and everything you spend for the business. I might help to get a good bookeeper
2007-12-12 01:09:22 · answer #3 · answered by K R 2 · 0⤊ 0⤋
Remember one thing.
The IRS has access to all your purchases for materials.
Their software has the ability to compare you with every other person in the same business.
If your claimed income is too far off from the comparatives, the computer kicks out your return.
If your customers refuse to pay tax, then you should include it in your quotes, and pay your damned share.
2007-12-12 01:19:00 · answer #4 · answered by ed 7 · 0⤊ 1⤋
Deposit the cash into your account like you would a check and pay the taxes. I get paid cash at times, it is not unusual.
2007-12-12 01:57:58 · answer #5 · answered by Anonymous · 0⤊ 0⤋
Don't try to cheat, you'll eventually get caught just claim all your income. You did keep records right
2007-12-12 01:09:54 · answer #6 · answered by meemaw1968 3 · 0⤊ 0⤋