title>Tax Guru-Ker$tetter Letter Wizard Animation


Tax Guru-Ker$tetter Letter
Wednesday, April 23, 2008
Working with cash...


Subject: Cash Tags


Cash tags, does cash have to be taken out of your business to be spent on expenses as cash. Or is all cash spent on expenses regardless of its source deductible as long as you have your receipts saved. Money from savings an example.

Do you have to divulge the source of the cash to use the deduction?



If you are posting cash expenditures made for business related expenses, it doesn't matter where the cash came from, as long as it wasn't from unreported taxable cash income. It could be from personal or business accounts.

Depending on the overall size of the cash expenditures for the year, the level of documentation should coincide.  Small amounts shouldn't be anything to worry about.

However, if you're getting into thousands of dollars, you need to be prepared to defend the original source of the cash in case IRS were to ever inquire about it.  They actually have audit teams that examine people in businesses that deal primarily in cash to ensure that every penny is accounted for.  Many of those people actually cut their own throats by reporting thousand of dollars more in personal and business expenses than the level of income they are reporting. There are plenty of classic cases of tax fraud where people are living very high on the hog, while reporting very small amounts of income on their tax returns.

IRS auditors are trained to start off from the premise that all money received is taxable income unless the person can prove otherwise.  So if you do come into a large amount of cash that was a gift, inheritance or one of the few tax free sources, you need to be diligent in documenting this fact.

One of the best ways to document cash is with QuickBooks.  Set up a bank account called Cash and show money going in and out just as you do with a normal bank account.  Doing it that way would protect you from IRS accusations of having unreported income.

Good luck.  I hope this helps.



Business Plan Pro



Powered by Blogger