Q: I am a 1099 subcontractor. I get paid cash. I do not deposit the cash in the bank. Is that ok?
I am asking because my accountant is looking for bank deposits, and I don’t have any.
A:
No, being paid cash as a 1099 subcontractor and not depositing that cash into a bank account is generally not advisable or okay from a tax and legal perspective. Here are a few key reasons why:
1. Tax reporting requirements - As a 1099 worker, you are still required to pay taxes on that income, even if paid in cash. Not depositing the cash means you have no record for reporting that income. This could be considered tax evasion.
2. Income documentation - Your accountant needs records of your income to prepare accurate tax returns. Without deposit records, you have no evidence for your earnings. This makes accounting and compliance much more difficult.
3. Legal concerns - Avoiding cash transactions and records raises red flags from an auditing and legal enforcement perspective. It looks suspicious and could lead to tax penalties or legal issues if continually done.
4. Business financing - Not depositing income makes it nearly impossible to obtain future financing like small business loans that often require tax returns and income statements to qualify.
In summary, I would highly advise speaking to your accountant and working out a system to start depositing any cash payments into a business bank account properly linked to your 1099 business. Paying taxes and documenting the income is required by law to be in compliance as a contractor.
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