So you may think that money is money, and no matter where your income comes from it’s all reported in the same way come tax season. If only that were true. The IRS makes a clear distinction between cash payments and checks when it comes to reporting the money received during the course of a year.
Essentially this is what you need to know when it comes to accounting for cash payments. To get started you should acquaint yourself with the federal 8300 form which is what you’ll be using for this type of accounting.
Cash payments from an individual in excess of $10,000 must always be reported using the federal 8300 form. These payments can either occur in a lump sum or as a series of transactions such as rent payments. It’s important to note that you are not finished after filing one 8300 form. Each time that payment threshold from an individual is reached you must file a new form within 15 days.
To further complicate matters you must also notify the person who gave you cash payments that you filed an 8300 form. The good news here is that you do not have to notify them immediately, and in fact have until January 31 of the following year to do so.
You may be thinking that all of this work isn’t worth it for dealing with cash payments. Unfortunately it absolutely is worth it since the penalty for failing to comply is a rather large fine of up to $25,000 for each instance of failing to file a federal 8300 form.
Despite the massive inconvenience that the federal 8300 form causes for small business owners, the government thinks it’s well worth the hassle as the 8300 form helps them track down terrorists and drug dealers who oftentimes use large sums of cash for transactions to help them stay off the grid.
