Starting Trouble with the IRS - Working Under the Table Can Destroy Your Business
Freedom from the average...
One of the major advantages to being your own boss is that you can sometimes bend the rules.
"Handshake deals" and "Under the table" payments are common, especially between small business owners and/ or independent contractors.
I know these seem like easy ways to work within small business circles, and a mutual barter system is the norm.
However the IRS looks for these sorts of deals and comes down hard on the business owner or contractor if they find out about them.
Sticking together...
Now when I talk about "handshake deals" and "under the table" deals I'm not talking about paying your nephew a hundred bucks for helping out for a day.
What I'm talking about is doing work that would normally be a couple thousand dollars for a bartering of services, or giving a buddy a special price and not reporting it on your 1099.
They will want you to pay...
The IRS doesn't care about those arrangements, because they want you to report on every little amount you earn, and every little amount you spend.
If the IRS finds out you've been doing a substantial amount of work, "under the table" they will audit you so fast it will make your head spin.
Think about it...
Even if you take away the possibility of the IRS breathing down your neck, you're really not helping each other when you make these "handshake deals".
If you do work for someone under the table then you can't report it on your taxes as income.
Your friend can't report it on his 1099 as a deduction for business expenses.
The IRS-Hitman's plan...
There is a way to take care of this problem and still be able to work out these deals with your fellow small business owner/ independent contractor.
The IRS doesn't require you to just report cash income.
Since barter is a form of paying for goods and services then it also should be reported to the IRS.
The next time you barter one good or service for another draw up a contract.
State the terms just as you would any other business transaction.
That way you both will report your income correctly, and be able to claim the value of the "payment" as deductions.
That way everyone wins.
Now you have the smoking gun...
Use it!
One of the major advantages to being your own boss is that you can sometimes bend the rules.
"Handshake deals" and "Under the table" payments are common, especially between small business owners and/ or independent contractors.
I know these seem like easy ways to work within small business circles, and a mutual barter system is the norm.
However the IRS looks for these sorts of deals and comes down hard on the business owner or contractor if they find out about them.
Sticking together...
Now when I talk about "handshake deals" and "under the table" deals I'm not talking about paying your nephew a hundred bucks for helping out for a day.
What I'm talking about is doing work that would normally be a couple thousand dollars for a bartering of services, or giving a buddy a special price and not reporting it on your 1099.
They will want you to pay...
The IRS doesn't care about those arrangements, because they want you to report on every little amount you earn, and every little amount you spend.
If the IRS finds out you've been doing a substantial amount of work, "under the table" they will audit you so fast it will make your head spin.
Think about it...
Even if you take away the possibility of the IRS breathing down your neck, you're really not helping each other when you make these "handshake deals".
If you do work for someone under the table then you can't report it on your taxes as income.
Your friend can't report it on his 1099 as a deduction for business expenses.
The IRS-Hitman's plan...
There is a way to take care of this problem and still be able to work out these deals with your fellow small business owner/ independent contractor.
The IRS doesn't require you to just report cash income.
Since barter is a form of paying for goods and services then it also should be reported to the IRS.
The next time you barter one good or service for another draw up a contract.
State the terms just as you would any other business transaction.
That way you both will report your income correctly, and be able to claim the value of the "payment" as deductions.
That way everyone wins.
Now you have the smoking gun...
Use it!
Source...