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greenscaper123
02-06-2013, 02:58 PM
I have a friend who owns a small landscaping business and he pays his two employees in cash. I always thought this seemed kind of silly because than how can you claim that money spent on labor as a deduction, right? But what he does is, he makes sure he has enough cash coming in from his customers to cover his labor costs. So if he's paying out roughly $3k a month in labor, he makes sure he's pulling in $3k a month in cash. That way he never draws money out of business account. Same thing goes for his other business expenses. Stuff like, commercial insurance, mower payements, insurance etc. he pays out of his business account along with his own pay, and makes sure he has enough money coming in "on the books" to cover those costs. I'm pretty sure he has workers comp though in case someone gets hurt. Does anyone else do this or know of anyone it's backfired on? I keep telling him he's crazy but he's been doing it for a long time with no problems.

willshome
02-06-2013, 03:12 PM
Paying cash can be a big problem
If he has workmans comp it will not pay them for their down time just med. Bills.
If he fires one of them they can sue.
If they damage someones stuff his insurane will not cover it.......

Sprinkler Buddy
02-06-2013, 03:34 PM
Very bad idea, it will come back to haunt you eventually. Many businesses do this but many have had to shut down because of it too.

Everyone thinks it wont happen to me, till it does. lol

RoughCut
02-06-2013, 03:57 PM
Not a good idea. I did it when I owned a construction company. "Everyone was doing it". Long story short, cost me $40,000.00. IRS came knocking on my door. Took my equipment, gave it back 2 months later. Lawyer cost me $ 13,000.00. I will never do that again. DON"T DO IT.

SECTLANDSCAPING
02-06-2013, 04:34 PM
Not a good idea. I did it when I owned a construction company. "Everyone was doing it". Long story short, cost me $40,000.00. IRS came knocking on my door. Took my equipment, gave it back 2 months later. Lawyer cost me $ 13,000.00. I will never do that again. DON"T DO IT.

thats a good story to learn from.


Workmans comp goes by payroll. If he doesnt have a payroll he has no workmans comp. Unless its for him personally. The only advantage he has is if someone gets hurt, they cant prove they work for him.

krzys666
02-06-2013, 04:46 PM
i understand paying in cash but it can really hurt you. wait until your employe gets hurt or even loses a finger because of a mower or hedge trimmer. you will be up s**ts creek. or if he gets mad at you and you fire him he can go to the irs and they can close you down for a while, just because of there investigation.

RoughCut
02-07-2013, 08:07 AM
My 2 cents again. Here's what I do. I work alone,any job I can't do I hire it done. I have never had a problem of going behind my back and stealing a customer. At first I took every Job, now I only take jobs that pay well, and customers pays on time. If for any reason I need help, I trade services, no money is exchanged. With the new health care laws that are coming, I don't want any employees. At the end of the year I may not have a large gross income as larger companies,but my profit % is higher. In my state ( IL) we can op out on worker comp, and get a refund . It took me 35 years to learn this. Should have listened to my dad and gone to collage.

Steve
02-07-2013, 12:36 PM
Long story short, cost me $40,000.00. IRS came knocking on my door. Took my equipment, gave it back 2 months later. Lawyer cost me $ 13,000.00. I will never do that again. DON"T DO IT.

This sounds like a great learning experience for everyone. Can you tell us a little more about the back story and how long of a process this was? Also how was it resolved?

stevef1201
02-07-2013, 12:39 PM
Tips for running an illegal business
1. collect CASH for payments, do NOT report them on your income / expense report
2. Pay cash for ever thing you possibly can
3. now here is the most important part -PREPARED TO GO TO JAIL FOR TAX EVASION, INSURANCE FRAUD, STATE INSURANCE VIOLATIONS.

TIPS FOR RUNNING A LEGAL BUSINESS
1. hire a lawyer
2 have him set up your company legally
3 hire and accountant
4 have them do you books legally
5 MOST IMPORTANT STAY OUT OF JAIL.

RoughCut
02-08-2013, 09:58 AM
If I tell the whole story, it'll be a book. Short story is this: Accountant didn't do their job correctly, caused an audit. Found workers classified wrong, had to pay back taxes, interest, and penalties. Hired 6 different lawyers, 2 different accountant, all had different ideas. About 2 years from audit to resolution. Found an retired IRS lawyer that helped me. He was not afraid of them. Got all my stuff back because of him. Family loaned me money to help , made weekly payments to IRS. Took 6 years to get released from the IRS. Heres what I do now: Only money in bank, for operating capital. ( 1 month)
Every thing is turned to cash
All investments are liquid
Borrowed money is hard money ( family,friends)
NO EMPLOYEES
This is not good for your credit rating, but have found cash talks.
Think of it this way: The IRS is a silent partner, they want their % win or loose.

Steve
02-08-2013, 11:22 AM
WOW!

Found workers classified wrong, had to pay back taxes, interest, and penalties.

Was this a wrong classification w2 vs 10-99 or was this with the job code that effects the workman's comp fees?

wandfsmall
02-08-2013, 12:50 PM
I am also from IL and luckly Obama Care does not directly affect you until you get over 20 employees. From what I see from my commercial cutters that have or have had employees they make more without them.

My 2 cents again. Here's what I do. I work alone,any job I can't do I hire it done. I have never had a problem of going behind my back and stealing a customer. At first I took every Job, now I only take jobs that pay well, and customers pays on time. If for any reason I need help, I trade services, no money is exchanged. With the new health care laws that are coming, I don't want any employees. At the end of the year I may not have a large gross income as larger companies,but my profit % is higher. In my state ( IL) we can op out on worker comp, and get a refund . It took me 35 years to learn this. Should have listened to my dad and gone to collage.

thom
02-08-2013, 01:49 PM
I have a friend who owns a small landscaping business and he pays his two employees in cash. I always thought this seemed kind of silly because than how can you claim that money spent on labor as a deduction, right? But what he does is, he makes sure he has enough cash coming in from his customers to cover his labor costs. So if he's paying out roughly $3k a month in labor, he makes sure he's pulling in $3k a month in cash. That way he never draws money out of business account. Same thing goes for his other business expenses. Stuff like, commercial insurance, mower payements, insurance etc. he pays out of his business account along with his own pay, and makes sure he has enough money coming in "on the books" to cover those costs. I'm pretty sure he has workers comp though in case someone gets hurt. Does anyone else do this or know of anyone it's backfired on? I keep telling him he's crazy but he's been doing it for a long time with no problems.

There isn't anything wrong with using cash to pay payroll.
But good record keeping is a must.His employees should
sign a document for the wages they receive, which
will also show all deductions.

RoughCut
02-08-2013, 02:14 PM
This was a 1099 issue. IRS classified them as employees.Now I keep detailsd records. Everything is backed by paper. Every dollar is accounted for.The last 10 years I have had no problems with the IRS.Every dollar that comes in , I pay tax on. If I use cash for equipment, I loan money from myself and pay myself intrest. Sounds dumb, but it works out real will for me. Plan is when I retire, will sell on contract to keep my monthly income.

jsslawncare
02-08-2013, 07:39 PM
No, he is saving money by not paying payroll taxes. But I'm no accountant.

Steve
02-11-2013, 11:13 AM
This was a 1099 issue. IRS classified them as employees.Now I keep detailsd records. Everything is backed by paper. Every dollar is accounted for.

What advice do you have for those just getting started, in order to avoid as many of these problems as possible?

RoughCut
02-12-2013, 03:37 PM
Hire an accountant at first. Have them show you how to set up payroll, and book keeping. Then buy a accounting program (software) and do your own if you're comfortable with it. Most accountants have software ,so it just plugging in numbers. With todays computers and software it is easy to keep your own books and do your own taxes. As a small business owner it is easy to get on a roller coaster with 1 year paying alot of taxes and then the next getting a refund. When you know every month what your profits or loss are, then you can adjust your expenses, to stop the roller coaster ride. I started doing my own book work and taxes. I know where I am every 2 weeks, so I have no surprises at the end of the year. I am no accountant , but could be now, after all I went through.

tk4454
03-20-2013, 10:56 PM
I have one guy that helps me, I plan to pay taxes this year, i pay him cash, cant i technically hire him as a sub contractor, and he does his own taxes, just to cover my own ***, but pay taxes on the money i make?

RoughCut
03-21-2013, 05:29 AM
The IRS has a detailed list that classifies sub contractors. If you stay within the guide lines,yes you can use them as subcontractors. I know that they have to have their own equipment and do work for other customers, just to name a few. Ask an accountant they can give the list. Or maybe the IRS website.