What You Need to Know About Cash Business Taxes
If your business deals solely in cash transactions, the IRS considers it a “cash-intensive business” and may put you under closer scrutiny come tax time. This stems from problems with the unscrupulous reporting practices of many cash businesses, but you can avoid an audit by following these tax rules.
What to Do When it Comes to Cash Business Taxes
1. Report Income Correctly
In addition to reporting all income for your business, the IRS also requires you to file special paperwork, called Form 8300, if you receive payments of $10,000 or more in a single transaction or related transactions. This form must be filed within 15 days of receiving the money.
Businesses that deal with more than $1,000 per day in payments, such as money orders or traveler’s checks, must report any transactions over $2,000 that seem suspicious. This may include behaviors, such as customers being wary of showing ID or purchases divided between individuals to come in under the minimum necessary to require a report.
2. Keep Appointment Records
Appointment-based businesses need to show how many hours are actually being worked in relation to the amount of money received. Extra unpaid hours can make the IRS wonder if you’re failing to report income. Any meetings that include entertainment expenses, such as lunches with clients, should also be recorded.
3. Track Spending
Dealing only with cash means that you won’t have a record of cash flow for your business unless you keep a detailed one yourself. This includes every business-related purchase that you make. You not only need to keep receipts, but also write down what the goods you bought were used for. Tax forms include categories for different types of business expenses, so keep careful notes of which categories your purchases fall into. These notes will show the legitimacy of what you’re buying, should the IRS start asking questions.
4. Be Clear with Bank Records
Make sure that both you and the IRS can differentiate between what does and doesn’t count as income on your bank statements. Log what you deposit and withdraw and what that money is used for, and note any refunds you receive. All these numbers should be consistent with the amounts you report to the IRS.
5. Know the Industry Averages
The IRS takes industry income averages into account when assessing whether or not to audit cash-intensive businesses. Continually reporting below these averages or showing losses year after year is a sure way to raise red flags. Living a lifestyle that doesn’t seem possible when compared to your reported income also catches government attention. Regardless of where you fall on the spectrum, be mindful of how much you’re making versus how much the government expects similar businesses to report.
A combination of careful record-keeping and honesty in reporting can keep you off the IRS’ radar during tax season. If you find the process to be overwhelming or confusing, a professional accountant can help you sort out your forms and files to ensure that all the paperwork is accurate.
Do You Have Questions about Cash Business Taxes?
At Verdeja & De Armas, our team of Miami tax consultants is dedicated to providing independent and unbiased tax recommendations for businesses and business interests of all sizes. Contact us today for a tax consultation!