- Underreporting Income
- Cash Businesses
You can't outsmart the IRS because they can lay claim to all your accounts for investigation if they believe you've underreported your income. This is especially important to understand when your business operates on a cash-only basis.
Don't think you can hide large or even multiples of small cash transactions from the IRS, especially over a number of years. There are three main ways to get caught in this trap: 1) if you work as a waiter or waitress or in some other job where you make tips as part of your income, especially when your income potential is high (think Los Vegas, for instance); 2) when your lifestyle is larger than your bank account (more charitable contributions than income, believe it or not); and 3) when someone who pays you in cash is audited. That last cash trail can be traced to you.
You must report any cash transaction over $10,000 on IRS Form 8300 by the 15th day after the date the cash transaction occurs. Failure to file this form on time can result in criminal investigation.