Working for cash pay and not reporting income

When my accountant gives me certain options I ask “what documentation will I need in case of audit”. Usually I go with what he tells me/suggests (after all, I’m paying for his expertise) but there have been times I’ve opted not to do something because I’m uncomfortable with the possible ramifications if the IRS came knocking.

I won’t claim to report every penny I get from working free lance (if someone gives me $10 to restick a shoe sole I don’t, because that’s only once or twice a year and even the IRS doesn’t have a problem with that amount) but if it meets the reporting threshold I report it. Two reasons, really: 1) I’m an honest person who doesn’t want to get screwed if I’m ever audited and 2) I’m in an income bracket where higher income, even if means slightly higher taxes now, means more in my SS check later on. So, in the long term honesty is my best policy. But a lot of people are crap at long term thinking/planning.

I’m really wondering what “IRS forms” those would be.

I actually did report my eBay profits for several years running because they ran into the thousands (I unloaded a LOT of stuff) but the only “IRS form” was my usual tax return. The IRS didn’t seem at all unhappy about that, and didn’t require any other forms from me. Unless I’m missing something here?

I ran into some tax issues when my spouse died and while I got them cleared up quickly the IRS certainly will come after the assets of a spouse if the deceased owes them money, even if it’s arguable they shouldn’t. They don’t make it easy to resolve those issues.

I think you’re reading too much into this. The interviewer was just asking if the interviewee could show a tax return that would support the claim of self employment in that period.

For a long time, people got away with income tax deductions for dependent children who didn’t exist. This was because the IRS didn’t ask for evidence when filing the return. That is, until 1987, when the IRS suddenly required taxpayers to report social security numbers for any dependents they were claiming on their tax return. Suddenly, 7 million fewer kids were being declared as dependents.

For the life of me, I can’t understand why you felt the need to lie. Perhaps they somehow felt that you weren’t being honest, so made up some nonsense to send you on your way. Either way, you’re angry because you lied to them and didn’t get the job? OK.

There’s a perennial problem with prospective employers asking questions that they have no business asking (along with disputes over just what questions they have any business asking), and how an interviewee should deal with that.

IIRC, there was this case that went to the Supreme Court in the mid-1980s:

A gay guy interviewed for a job on an oil rig in the Gulf. They asked him if he was gay, and he lied, saying no. (Why did they even ask? Do they ask everyone that?) Later, he got outed somehow, and was fired.

He sued for discrimination. The company denied that they discriminated, saying they fired him for lying at his interview.

The Court ruled for the company, saying that there is no Constitutional right to lie.

Well, yeah, and that is why this process is highly regulated. But in the OPs case, they were asking about employment history, which is related to employment. Why not just answer, “I came into a small amount of money and took some time off”?

It’s also self-defeating to some extent. By underreporting your income now, you reduce your income tax and your social security tax now - but you also reduce your social security benefits after you retire. A smart-but-unethical worker will take their undeclared cash income and invest it for the long haul so as to provide a supplement alongside Social Security after they retire. I suspect most people hiding cash income aren’t thinking this far ahead.

The upside is you have the money early and can slowly make it work for you. The bottom line is the cheaters are not paying the government there part of for this great country and all the perks that cost. Roads defense & health.

It’s called “working under the table” here in the US. It is extremely common businesses such as restaurants, child care, construction, and others that tend to be cash-centric and have limited record-keeping. I imagine most probably don’t get caught.

There was a big deal in the media a few years back about some celebrity not declaring taxes for their nanny or something. But I think that’s pretty common around here. Nanny’s in New York and surrounding suburbs can make around $50,000 or more a year. Pretty sure most of them are getting paid off the books.

About 15 years ago we were interviewing for a nanny. The first four people we selected dropped out when I said we’d be paying them via a payroll service. Even offering 15% more (“grossing up”) did not move them, because it wasn’t just the taxes, one of them was supposedly 100% disabled, another didn’t want her ex husband to find out, etc.

You think any of the people who are doing this are carefully saving and investing the money that would have gone to pay income and Social Security taxes? I doubt it. They are more likely to be spending the money.

Not exactly true; I forget the amount, but I believe it’s somewhere around $50m (Roman numeral m = 1000), but after a certain amount of earnings, you don’t get any more SS when you retire as SS payments are capped. A Fortune 500 CEO who’s making 8-figures this year alone (as well as past & future years) isn’t getting more SS than you or I when we all retire, assuming our lifetime earnings got us to the max payout. Of course, he’s going to need it a lot less than we will.

If you’re reporting $30m of income, then yes, you are shooting yourself in the foot; however, if you’re reporting $60m of income, then you’ve already maxed out your benefit & you are at an advantage (as long as you don’t get caught) to taking cash under the table for any extra work. Construction/contractors can end up in this area; day laborers & their lower wages, not so much.

I don’t know why you’re using confusing shortcuts like $50m rather than just saying $50,000, but the SSA website says the maximum taxable earnings are $142,800.

Like welfare cheats, it has to come down, at some point, to how much financial resources you’re willing to outlay to track down the loss.

If you’re spending $10k chasing after people with no assets to seize, you’re going to go broke. Every system you invent will have a small number of cheats who have figured out a way to work the system. If it’s only 5% of people spending 10% of your resources chasing them makes no sense. And it diminishes the aid available to the 95% you’re trying to help.

The IRS can’t afford to chase every uni student, who owns nothing but debts, working a summer slinging drinks. They’d go broke trying. Common sense dictates they predominantly chase people with assets.

No one likes cheats, but a small percentage is always going to be tolerated, with any program, I believe.

Some of my parents’ friends did this. They had a cash business, did not report a fair amount of income, and then were surprised when the Mercedes dealership called the IRS when they tried to pay for a new car entirely in bricks of cash. I imagine car dealerships see this with some frequency and likely have the revenuers on speed dial.

I think they ended up paying $50k to the IRS to settle the back taxes. Putting down literal cash on a large purchase was not exactly the brightest move on their part.

And they were later shocked to learn how much my parents (who also ran a cash business) were getting in social security payments. Funny how that works when you actually report your income and pay into the system. That’s the flip side - they didn’t have to worry about ‘appearances’ when it came to spending their savings later in life.

I have seen this happen many times and the back taxes and penalties are never enough to make this not worthwhile. For every dollar the IRS can prove or impute that they have not declared they’ve hidden two more that the tax man hasn’t found.

When one of my relatives died, she left a box of gold “bangles” to the orphanage where her husband grew up (in India). The value was over 120k USD. They had a “corner shop” in Canada for 30+ years. They would use cash to buy these “bangles” from Indian jewelers every few months. These aren’t really jewelry, they are effectively bullion in colorably jewelry form. Just basically a donut of gold.

They had numerous tangles with Revenue Canada and complained about how they were being screwed, but you better believe they were laughing all the way to the bank [safety deposit box]

Depends on the person, really.

Some are very clever. Some are dumb as a box of rocks. I’ve seen all sorts of outcome from this in my lifetime.

EXTREMELY rampant.

This is so routine for small contractors it’s almost unusual when it doesn’t happen.

(I am a small contractor but my customers pay my corporation, not me personally, and it’s not a kind of business where I can ask for cash, so cheating is effectively impossible.)

Or the usual “$50K.”

It’s pretty easy to hide the money should you be of that bent. There’s a lot of cash economy going on where I live, and it’s doubtful the vast majority of it gets reported. At one job I worked many moons ago, there was one till that operated in the morning for a few hours – that was off the books, and the other till operated the rest of the day, which was on the books, for instance. Here it is common to ask a small business for a cash discount, with the assumption that some or all of that money is going to be kept off the books. My business deals with e-pay and checks, so everything is reported. Back when I worked jobs that included tips that had a normal base wage rate (not one for tipped employees) – Nobody ever reported those tips.