Dealing in cash can pose problems for employers, employees

Many working Americans would agree that there is nothing better than cold, hard cash. For businesses owners who choose to pay employees in cash, however, there can be tax problems related to dealing in cash. Likewise, being paid in cash can also result in unmet tax obligations for employees that can land them in hot water with the IRS.

Recent news of actress Lindsay Lohan's tax problems prove the troubles that can ensue when one chooses to deal in cash. Some of Lohan's troubles with the IRS stem from the actress's requests to be paid for personal appearances in cash. While being paid in cash is not illegal, failing to file the necessary IRS tax forms related to cash payments is.

When businesses choose to deal in cash, the task of accounting for monies that are earned and paid requires a lot of time and attention. Small business employers in particular may be tempted to avoid payroll taxes and unnecessary paperwork by paying employees cash. Likewise, employees may view cash payment as an easy way to avoid declaring income and paying taxes on that income.

Regardless of motive, whether intentional or an oversight, failing to pay taxes on cash earned can end up costing an employer or employee more than they bargained for. Armed with various tools, IRS auditors are able to cross-reference tax forms to determine if and when employers or employees are attempting to evade paying taxes on earned cash.

Maryland employers or employees, who are facing criminal charges related to tax evasion, should seek the counsel of a skilled legal professional. An experienced tax litigation attorney can provide valuable legal advice and help ensure the best possible outcome.

Source: Daily Finance, "Getting Paid in Cash? Don't End Up Like Lindsay Lohan," Dan Caplinger, Dec. 7, 2012

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