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Paying a sub-contractor in cash

13 posts by 12 users

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Just Don

Aug 25 '09, 12:35 AM


I have a guy wants to be paid cash off the books on a job he is doing for me. Is this a problem for 'ME' ?? Whats the pitfalls of doing THAT??


Edited Jun 26 2010, 09:28


Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Aug 25 '09, 12:44 AM


Its a red flag that they're not a legitimate contractor. If they're not paying taxes, they probably don't have insurance or proper licenses, either.


Edited Jun 26 2010, 09:28


Jon Holdman, Flying Phoenix LLC


Jereme Peltier

General Contractor from Knoxville, Tennessee

Aug 26 '09, 04:12 AM
1 vote


Jon could be correct, but their has to be more to it. I do lots of jobs for cash (side jobs) that are small and or low risk where I know that my workcomp and insurance will not be a factor. If this is a one time deal and is a relatively small project than I would say go for it, it will also create less paper work for you at tax time just put it in with misc. labor. But if he wants to make a career with you than he needs to be on the books. I have a few subs that ask for cash jobs now and then 9 times out of 10 it's nothing to do with taxes, they're usually divorced with kids and need living cash. Hope this helps, let me know how it works out.


Edited Jun 26 2010, 09:29


J Scott Moderator Donor

Real Estate Investor from Ellicott City, Maryland

Aug 26 '09, 09:06 AM
4 votes


Do you plan to write off his work as an expense against any income/profit you make on this project?

If not, don't worry about it...

But, if you plan to claim this expense as a deduction, the IRS is going to insist that someone pays taxes on that money that was paid out. If you provide the contractor a 1099 at the end of the year, he pays the taxes. If you don't provide him a 1099, the IRS will expect YOU to pay the taxes.

That's the pitfall...


Edited Jun 26 2010, 09:30 by J Scott


Medium_lishproplogoJ Scott, Lish Properties, LLC
E-Mail: [email protected]
Website: http://www.123flip.com
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Dennis Treacy

HVAC Contractor from Philadelphia , Pennsylvania

Sep 28 '09, 10:25 AM


If he is going to provide a discount for the cash then you have to weigh the discount against the loss of a write off.

I will pay cash without a receipt for items I buy on Craigslist, but then again when you pay 20 cents on a dollar who cares about write offs.

As far as paying subs in cash I no longer do it, most times the sub is a bum.
At this point in life I would rather pay the freight to have the job done right the first time.


Edited Jun 26 2010, 09:51


Steve L.

SFR Investor from Rancho Cucamonga, California

Sep 28 '09, 11:00 AM


I wouldn't pay cash. You lose the tax benefits.

If you do... get receipts and everything in writing. Pay upon completion.


Edited Jun 26 2010, 09:51


Brian Levredge

Real Estate Investor from Chattanooga, Tennessee

Sep 28 '09, 11:14 AM


It is not the end of the world to pay in cash from time to time. You still want to have a contract in force with the sub that outlines price, time frame, materials to be used, etc.. You can still pay him under the table but the contract will help to keep him honest.

Don't pay more than 10% up front and make sure you are dictating the terms of when he gets paid. I'm a GC in CA and between worker's comp expenses, business taxes, and all the other things big brother sticks his hand in your pocket for it can be difficult at times.

At the risk of sounding unethical, you may want to set up a separate personal checking account under your own name and pay out of that, not your business account. Don't co mingle the funds either or you'll get nailed for both.


Edited Jun 26 2010, 09:51


Jason Fant

Real Estate Investor from Fuquay-Varina, North Carolina

Nov 09 '09, 11:27 PM
2 votes


How much is the job? If it's more than just a minimal job, then I'd move on to the next contractor. For an example of why, just watch any episode of Judge Judy or People's Court :)


Edited Jun 26 2010, 10:27


Mike Haro

Real Estate Investor from Indiana

Dec 08 '09, 11:14 AM


From time to time I pay Subs in cash but I always ask for a receipt/invoice to use on my end.


Edited Jun 26 2010, 10:46


Anthony Larson

Real Estate Investor from Las Vegas, Nevada

Dec 09 '09, 10:42 PM


Say it is a small job, but they slip and fall, because their not working on a contract, would their insurance come into play. Or could they sue and make you look like a demon?


Edited Jun 26 2010, 10:47


J Scott Moderator Donor

Real Estate Investor from Ellicott City, Maryland

Dec 10 '09, 04:24 AM
1 vote


Originally posted by Anthony Larson:
Say it is a small job, but they slip and fall, because their not working on a contract, would their insurance come into play. Or could they sue and make you look like a demon?


Certainly you want contracts in place and verification that your contractors have both workmans comp and liability insurance...

This is completely independent of whether you pay them with cash, check, credit card, or live chickens...


Edited Jun 26 2010, 10:48


Medium_lishproplogoJ Scott, Lish Properties, LLC
E-Mail: j@[email protected]
Website: http://www.123flip.com
CHECK OUT MY BIGGERPOCKETS BOOKS: http://www.biggerpockets.com/flippingbook


Aaron Mund

Real Estate Investor from Arvada, Colorado

Dec 11 '09, 06:09 AM


My father is a sub contractor. I have been on jobs with him were they ask if he wants cash and he usually says 50/50. That way he is still able to pay the taxes and insurances but also has cash. It is also proven that he is working for you. I would make sure to get a receipt. That way the sub cannot come back and get you for the payments. Now most of the people that offer to pay in cash are friends or friends of friends that he has been working for, for a long time.


Edited Jun 26 2010, 10:49


Michael Shadow

Multi-family Investor from Bellefonte, Pennsylvania

Dec 15 '09, 10:18 PM


I'm a contractor and I also do sub work. I never take pay or pay in cash. It's a big red flag and it has the potential to get you into big trouble.

Any contractor that knows what they are doing, has insurance, licenses, etc would be glad to take a check. It's the ones that are not legit that want cash payments.

-Michael


Edited Jun 26 2010, 10:52


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