money in your hand v. in the bank

Im not sure if im posting this in the right area, but im sure someone will fix it, if need be.

Well, the other day i was trying to explain to my girlfriend why i would like to be repaid for some tickets that im buying for her and her family in cash. She wanted to pay me with a check… and i went on and told her that it is better for me to recieve the money as cash because i do not want it showing up in my bank records. One reason i told her this is because if i deposit money into my account it is liable to be taxed by the government. I also told her that it would prevent me from recieving as much financial aid for school (im a college student, so if possible make statements that would be relevent to my situation… i gotta prove her wrong) She went on to claim that it doesnt make a difference and that the governement wont check my account. I told her that the governmentlooks at the amounts in bank accounts b/c it is an idicator of how the economy is functioning. From these figures and other ones used from different indicators they basically dictate the interest rate. Oh and i threw into the mix that checks and credit cards arent money. she said it didnt matte b/c her check wasnt goin to bounce, but i remained loyal to my statement that cash doesnt leave a paper trail.

Anyways, i went on to say that putting all my money in a bank isnt the best option for me because it leaves a trail and that u dont really make any money by depositing money in the bank. My reason ing was that say u have a $100 in the bank. With an interest rate of 3% will grant u $103 at the end of the yr. So u made $3, but not exactly. That same yr inflation was 7% so to have the equivalent amount that u started the yr with u would need $107. Therefore, u lost $4 essentially. She disagreed because you ended up with more money ($103) than you started with ($100) so you actually made money.

Who is right and which statements were right or wrong in here?

I hope i made some sense.

You are wrong.

Merely depositing money in your account does not cause it to be “taxed by the government.” Income is taxed.

If you got a $1000 cash advance on your credit card and put the money in your account, you wouldn’t be taxed; that money is a loan, not income.

If you have $100 in cash, kept under the mattress, at the end of the year you’ll have the same $100. If inflation was 7%, then your $100 has lost 7% of its buying power. If you put it in the bank, and got 3%, at the end of the year you’d have $103 dollars, which still takes the 7% hit – but you end up $3 better.

In short - you would do well to listen to your girlfriend, who seems to have a firmer grasp on these concepts than you do.

  • Rick

The only time a deposit is reported to the IRS is when it is $10,000 or more.

Whether you get paid in cash or deposit a check, the legal requirements are the same. The only difference is the paper trail.

In regard to interest rate, 3% bank interest needs to be compared to the interest you earn by placing it under your mattress, not the inflation rate.

First, the government does not look at individual bank account records as a source for economic indicators. The government utilizes aggregate data filed with the Federal Reserve Banks.

The government doesn’t have a right to just look at your account records. A subpoena generally has to be issued to the bank for this to occur. If this were to occur for your accounts, taxes and financial aid would be the least of your concerns.

Based on the rates of interest and inflation you have presented (which are a little bit high.) If you kept the $100 under your mattress, you would have lost $7. You would have been ahead by having it in the bank.

Well, on the face of it, the person who banked his $100 for a $3 profit could be said to have lost $4, but the person who kept his $100 under the mattress lost $7.

(1) The IRS doesn’t care how much money you have, only how much money you earn. They will tax any interest on money in the bank, but the remaining interest is still money, and it’s money that you won’t have if you don’t put money in the bank. No one will tax your deposits, although depositing thousands of dollars might imply to the IRS that you have sources of income that aren’t being taxed.

(2) Reimbursement isn’t earnings. It’s not taxable. Having large amounts of money show up in your account may influence your financial aid situation, but financial aid is mostly a question of income.

  1. Checks are money. Credit cards are money. True, cash leaves no trail, but why do you care? And no, bank deposits are not a major factor in how the Federal Reserve determines the discount rate—that’s mainly a function of inflation.

  2. Your girlfriend is right: $103 is more than $100. Did you think that cash in hand is somehow immune to inflation?

The only true statement is that cash leaves no paper trail, and I can’t see that it has anything to do with anything.

So even if she writes you a check, why can’t you just take the check to the bank and cash it? I just don’t understand the subset of people who would rather leave their money lying around just anywhere (or carry it with them), when they could put it somewhere where it (maybe) accrues interest, but is definitely insured against loss or theft (up to what, $100,000 or so in most places?).

Maybe you’re ok with it, but perhaps your girlfriend isn’t crazy about walking around the streets with a few hundred dollars (or however much all those tickets are) in her pocket. That’s why she wants to write you a check (I would, too). If you want the cash, it’s a trivial matter to take it to the bank and cash the damn thing instead of depositing it. I understand where you’re coming from regarding financial aid, though–they ask you to provide the total of all account balances you have, and if you don’t have any money in the bank it looks like you don’t have any money (and are eligible for more aid). But, as nametag said in point 2, financial aid is mostly based on income, especially if we’re only talking a difference of a few (or even several) hundred dollars.

Also wrong. You’re supposed to list all assets when applying for financial aid. That includes cash, not just bank accounts. You can not report it, of course, but that would put your entire aid package in jeopardy if they found out you lied. And the amount you seem to imply is being repaid is too small to have any real affect on financial aid if it were reported.

Im sorry i forgot to mention that im a waiter also… which means i have plenty of cash (not ALL reported) and that the more money i keep out of the bank the better for fin. aid… oh i guess i fudged on the fafsa form, so that will probably make a difference in the fin aid package i recieve. Also, i use the cash to pay my bills with so i dont hold all the money for anytime more than a month.

And Nametag you are wrong about checks and credit cards being money. The government does not declare that they are legal tender. That is why some places do not accept American Express or a different credit card and the same goes for checks. All a check is is a piece of paper that instructs the bank to transfer “money” from one person/business to another.

Yes, i do agree that i have forgone the interest rate that i would have earned had i placed my money in the bank. This is an opportunity cost that i took, but i can also pay for things at a cheaper cost via cash. Im not saying that i could not just as easily withdrwn the money to pay for the item, but i previously answered y i try to avoid depositing all of my money into the bank. For example, The phrase “how much in cash?” comes to mind. When purchasing something like a car, one would ask “how much cash?” Sure, the business already has a price on the car, but the cash is an ideal medium of exchange. Then after having purchased this car, it acts as a store of value. Im not implying that the value of a car is more stable than actual money, but it is just an example.

Oh and by the way, if i have money that im not using in the bank, isnt there other options for placing my money so that i can achieve greater returns. Bonds, stocks, and cd’s come to mind.

No, Nametag is correct. All legal tender is money, but not all money is legal tender. A check or a credit card is not legal tender, but it is definitely money; in fact, it is what an economist would call “M1,” a primary medium of exchange that is widely (albeit not necessarily universally) accepted in trade. M1 usually consists of cash, checkable deposits, and negotiable credit. The “money” that a bank moves around as a check instructs in not “legal tender” either, but it is still money.

I would advise that you not disclose any illegal activity on this board, which prohibits discussion about how to break the law. Failing to report tips as income technically violates the tax code (regardless of how serious one deems that to be).

Yeah, I can see that you’re all torn up about cheating on the financial aid form. But I guess that will only affect the poor honest saps, huh?

SKC, you don’t even know what “legal tender” means, so how can you tell me that it has anything to do with your argument?

And what, precisely, do you think a Federal Reserve Note is? A very thin gold nugget? No, it’s a piece of paper that you accepted in exchange for something, and that someone else will accept in exchange for some other thing. If you give or receive one at a bank, they will change some digits in your bank balance, exactly as they will for a check. A credit card is a piece of plastic that enables the vendor to create a charge form, which, when you sign it, is a piece of paper that V has accepted in exchange for something. V then instructs the issuing bank to change some digits in V’s bank balance, and the issuing bank then requests a similar change from you. The only difference is who’s backing up the note.

P.S. “legal tender” is something that constitutes satisfaction of a debt or contract. A check or credit card is legal tender if the creditor accepts it as such; the only special thing about cash is that the creditor has to accept it. And most purchases are exchanges which do not incur debt, so the “legal tender” status of cash does not enter into it at all.

I wonder what kind of bills you have that let you send cash? All of mine say “DO NOT SEND CASH.” Check or credit card only. I guess sometimes with your electric bill, etc., you can pay it at the bank or grocery store or whatever, but certainly not all of your bills can be paid this way.

Especially when relatives of IRS criminal investigations people are floating around.

Your “how much cash?” strategy does work well with big ticket items like cars, jewelry, etc. but it’s hardly an everyday financial tool. Do you do this at the grocery store, the gas station, etc? How often do you put that tactic to use? Do you keep a few grand in the glove box so if your car breaks down you can go buy a new one for a good price?
I hope that your wallet is *never *lost or stolen.

The instruments you listed, as well as mutual funds, etc. do not allow for immediate or even quick access to your money. If you close out a CD before maturity you could end up owing the bank money. Money market accounts, and interest bearing checking accounts will keep your money liquid, BUT they have a minimum balance requirement, which means you would have to keep even more of your money in the bank. Ha, ha, ha!

Not necessarily, since cash transactions over $10,000 must be reported by law. Pay for a car with cash, and you’ll probably wind up answering questions about money laundering.

In the interests of encouraging lawful behavior, I must point out that tipped food service workers are on a list of employee classes more likely to get audited by the IRS than many, but not all, other classes of employees.
The IRS can come after you for YEARS after your wrongdoing. If you DO get caught, the penalites for knowingly filing incorrect returns will substantially exceed any savings you may see today.
Bear in mind that as a college student, in the future, you’ll likely have a much higher income than you do today, and repaying some student loan won’t kill you.

By the way, banks have forms called “SARs” that they have the option, sometimes the obligation, to fill out when they notice an interesting pattern of transactions that a customer has.
Most personal accounts have 1, 2 or 4 deposits per month. More than a certain number looks odd, although I don’t know the threshhold for suspicion.
Moving an abnormally large amount through your accounts, especially relative to your paychecks, tends to look funny.
If you’re running a legitimate business, or using a business account, of course, this all looks less weird.
Lastly, large sub-$10K transactions, occurring semi-regularly and in fixed amounts invariably gets “Structuring” paperwork filed on you. Structuring is actually more suspicious than cash transactions over $10K. Real criminals know enough to structure… honest businessmen sometimes wind up with $15K in cash.