Working for cash pay and not reporting income

In My Humble Opinion
41

In my job I very regularly encounter folk who do not report their cash income. And hiring workers around the house, it is not uncommon for workers to ask for cash, or a check paid to someone other than the ostensible employer.

SOME such folk are pretty sophisticated in their decisions. They report sufficient $ to retain various benefits, but for whatever reason they feel they would be better off not reporting/paying taxes on the full amount. Other folk underreport to retain eligibility for various bens such as SS.

And then, there are many who just feel they are getting away with something, and don’t consider longterm or auxiliary implications.

42

I report all of my income, as I am not savvy enough regarding business to do otherwise without getting caught. Yet local farmers often pull out a roll of bills and ask me “how much if I pay cash?” Foreseeing this, I quote them $75 high, then reduce my estimate by $50 so everyone is happy.

43

I get the same question, and I just answer “I don’t charge differently if it’s cash, check, ePay or credit.” With me, it’d be pretty easy to hide – my fees are almost all labor (photography). There’s some product, but the bulk of the income is labor, and there’s little trail of the work I do unless a client actively reported paying me. But it’s not worth the time, hassle, stress, and illegality of it.

44

Beefing up the IRS would be a huge money maker for the country’s governance. Auditing large companies and rich individuals is complex and time consuming so the agency is now more likely to go after taxpayers of more modest means. The end result is that the country annually loses upwards of half a trillion dollars by letting the biggies skate and making a half dozen poverty-ridden counties in Mississippi the most frequently audited in the nation. Absurdity.

Meanwhile, we have the current GOP and our own Tulsi Gabbard vigorously opposing a beefed up IRS “harassing” more taxpayers.

My own favorite anecdote is about a not too bright friend who went freelance from his job, declined to report much of his income and then complained bitterly that the bank wouldn’t accept his assertions that he made much more than his tax return demonstrated (when he applied for a mortgage). Incredible thought processes there.

45

I presume that this is why there are situations where the penalties include some jail time.

46

This almost never happens. Almost the only people to ever be jailed for tax evasion are those who are also convicted of or at least charged with illegal activity that resulted in the income in the first place.

Prison time for “legal source” tax evasion is vanishingly rare at least at the federal level.

47

Different numbers. Once you earn over 142,800 they stop deducting SS taxes from your paycheck.
Once you make something around $50,000 you are entitled to the full SS benefit when you retire. Assuming it’s $50m, whether you make $50m, $60, $100m, $142799, or $1 mil you don’t get any more SS per month. However, if you only average $30m/year for your career, you get less than the maximum because you haven’t paid in enough.

We’ve been thru this before, I started my career in the bond world; m = thousand there; k was never used.

48

Assuming you mean $50k that is way too low. The current maximum AIME $10,141 or $122k per year. And this distinction is relevant because between $50k and $122k is where most people in the United States. So by saying $50k you are making it seem that this is relevant to most people. At $122k (per individual earner) this cap is relevant to fewer than 10% of people.

So you know this is not standard for anyone outside the securities trading world, but you keep doing it to show that you are so clever?

49

I must be naïve. I thought the point of lower cash prices was the transaction fees associated with other payment methods.

50

Evading small amounts of taxes are an example of black market activity that most societies tolerate at a low level because otherwise the transaction costs are too high and stifle economic activity.

For example, it might be a good for society for someone to help,out in their neighborhood doing small jobs. If it’s not a lot of money, the tax implications are low, but trying to enforce taxes on someone who made $100 by helping a neighbor will not only cost more than the taxes reclaimed, but the knowledge of strict enforcement may deter people from doing odd jobs that need to be done.

The Soviet Union tolerated a huge black market and looked the other way as people got rich off it, because the black market was needed to help fix the horrible inefficiency of state planning and distribution of goods. Something similar goes on at the very low end of tax compliance.

If we get scrutinized by tax agencies hard enough that you can’t hide even a small bit of a cash transaction, it will have a chilling effect on small ad-hoc jobs, the ability of illegal immigrants to work, small business startups (which often start as a small ad-hoc cash business then become legit as they grow), and other useful activities we’d like to see people keep doing.

But for that to work, it can’t get out of hand so governments will not admit that they will accept a low level of avoidance, there have to be constant audit threats, etc. Occasionally someone at the high end of what’s tolerable must be publically charged and punished.

But if a government actually decides to drive tax evasion to zero by micro-managing small transactions, it will damage the economy.

Take the eBay thing. If you are buying goods and selling them on eBay as a business, by all means you should pay taxes. But if you are an individual liquidating a few things you own, you shouldn’t. And we want to encourqge as much of that kind of activity as we can, as it moves goods from low-value uses to higher-value uses. It’s like making new things people want, without using any new materials.

But if I have to worry about claiming the sale of my old stereo on my taxes, or I know selling it on eBay could trigger an audit that will require me to hire an accountant and spend hours doing paperwork, I’ll leave the damned stereo in the basement and no one will extract any more value from it. That’s a bad outcome.

51

Funny how the Law & Order types are never in favor of enforcing the tax laws.

52

There’s a fairly robust underground economy here in Ontario involving small jobs done by independent contractors, like gardening or handyman type work. The service provider benefits by avoiding income tax, but the customer benefits by avoiding the 13% “harmonized sales tax” that would otherwise be tacked on, which is a real ripoff. The “harmonized” part refers to the fact that it combines the federal Goods and Services Tax (GST) of 5% with the provincial sales tax of 8%. The ripoff part is that historically provincial sales taxes only applied to merchandise, with exceptions for certain necessities. But now that it’s “harmonized” it applies to services, too. If the government is intent on ripping people off, I’m fully in favour of ripoff-avoidance.

53

Sometimes it is - but it varies , probably by the type of business. The clothing stores that have been saying “cash, no tax” since the 80s were definitely not reporting their cash sales while the take-out restaurants whose menus say " prices include a 3% cash discount which will be removed for non-cash payment" might just be trying to recoup the transaction fees.

54

Yeah, but that most likely isn’t tax evasion - because you only have to pay taxes on profits and selling your used personal possessions is not likely to result in a profit.

55

Somehow a discussion of a business doing thousand dollars jobs “off the books” becomes a concern about taxes on yard sales.

56

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57

The key word here is “enforce”. Yes, it costs money to enforce the law.

But if we would be good citizens and pay our fair share willingly, then not only would the money spent on enforcement plummet, but tax rates could go down because more money is going to the government.

58

The point is that an IRS ‘crackdown’ on eBay sales will result in a lot of audits or paperwork for people who were doing exactly that - selling private possessions. Because other than an audit, the government has no way of knowing whether your $2,000 in eBay sales were from your small husiness reselling goods, or your own private stuff.

This in turn could have a chilling effect on people wanting to sell their old items, which is something we don’t want to hppen.

59

Who is suggesting a crackdown on small scale ebay sellers?

60

Somehow you are confused that the subject is limited to ‘thousand dollar jobs’. It’s actually a general discussion of working for cash so as to not pay taxes.

One very common small business is for people to go to yard sales and auctions looking for bargains which they then sell on eBay. I’m guessing the large majority make little more than some extra spending money here and there, for which going through the tax rigamarole just isn’t worth it - for anyone, including the government.

But then there are eBay sellers moving millions of dollars in goods per year. We need to be able to distinguish between those.