While many businesses find that cash payments are both industry-standard and a convenient way of doing business, and acknowledging that it is perfectly legal to accept cash payments, there are some challenges to consider when it comes to preparing for tax season if your business accepts large cash payments.
It is important to be aware that IRS actively pursues and penalizes any business that manages money by using cash as a way to avoid payroll taxes and other payments. (If you’re currently looking for help navigating an IRS audit, click here for assistance.)
Read on to learn more about how to handle your business taxes if you accept cash payments, to ensure you stay compliant and don’t raise any red flags in the eyes of IRS.
IRS Requirements for Cash Transactions
The best way to manage cash transactions in your business is to enlist the support of a registered CPA, they will be aware of the rules and how they apply to your business. Federal law requires businesses to report cash payments of over $10,000 to IRS. If you currently receive cash payments in excess of $10,000, consult your CPA on your legal obligations for reporting..
Reporting larger cash payments involves filling out specific paperwork with IRS. Form 8300, the IRS large cash payments form, includes a few essential details, such as your address, tax identification number, your name, and details of your transactions. Unlike other tax documents, Form 8300 must be submitted within 15 days of receiving a large cash payment, not only at year-end tax filing. Additionally, you have an obligation to tell your customer that you have reported the transaction to IRS (they have the legal right to know that you have shared the details of their payment with the government).
Accounting for Your Cash Transactions
The federal government is committed to keeping close tabs on anyone who takes large cash payments, as this helps to prevent money laundering and reduces the risk of other fraudulent crimes. When you handle cash payments as part of regular business operations, be cognizant of the requirements associated with your chosen form of payment receipt.
Even if your larger payments aren't in American dollars, IRS requires reporting. IRS includes foreign currencies in its considerations of cash payments. If you accept large cash payments in any currency, you will need to keep track of those items e.g., bank drafts, cashier's checks, traveler's checks, and money orders.
The best way to avoid trouble with IRS is to ask your CPA for advice on how to manage both your large and small cash payments. Remember, in most cases larger transactions must be reported immediately (within 15 days), and every transaction that your business makes requires recording and reporting to IRS each year.
Turn to Milikowsky Tax Law for Support in Legal Tax Matters
If you do end up the subject of an IRS audit, remember that documentation is everything. Just like any other transaction made in your business, you should accurately record and log your cash payments. The more thoroughly you document your transactions, the easier it will be for your tax advisors to craft a strategy that will help you navigate an IRS investigation smoothly.
Seeking expert legal counsel is essential in the event of an audit or other investigation. While your CPA can provide general advice and accounting expertise for filing your returns, you will need a tax attorney who is well-versed in tax law to represent you in legal matters involving IRS. The attorneys at Milikowsky Tax Law have years of experience addressing legal tax matters, IRS, audits, EDD audits, and more. On top of our legal expertise, we have been small business owners ourselves — so we understand first hand the challenges and requirements of managing small business taxes.
If you need support in navigating your IRS audit, or for legal advice to help you reduce your risk of being audited in the future, contact Milikowsky Tax Law today.
The information contained on our website and in blogs is provided for information purposes only and does not constitute legal advice.