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  • Paying your employees in cash???

    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.

  • #2
    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.......

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    • #3
      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
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      • #4
        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.

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        • #5
          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.

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          • #6
            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.
            Krzysztof
            Zawadzki Landscaping
            203-212-2498

            www.zawadzkilandscaping.com
            http://www.facebook.com/ZawadzkiLandscaping

            Comment


            • #7
              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.
              Last edited by RoughCut; 02-07-2013, 09:10 AM.

              Comment


              • #8
                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?
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                • #9
                  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.

                  Comment


                  • #10
                    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.

                    Comment


                    • #11
                      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?
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                      • #12
                        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.
                        I am the owner of www.AllOutdoorParts.com an online mower parts distributor. I am also a Briggs Master Service Technician and Expert Certified Mechanic for Kohler. If my posts helps you please like my facebook page at www.facebook.com/alloutdoorparts

                        Comment


                        • #13
                          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.

                          Comment


                          • #14
                            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.

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                            • #15
                              No, he is saving money by not paying payroll taxes. But I'm no accountant.

                              Comment

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