Paying sister and friend to help on rehab

Tax, SDIRAs & Cost Segregation
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Paying sister and friend to help on rehab

Tim Hertz
Investor · Abilene, KS · Member since 2017 · 17 posts · 5 votes

Hello all,

I am doing a rehab and I have a sister and a friend I want to hire to help. They will make over $600, but this is more of an "under the table" cash deal. Can I claim $595 (avoiding 1099 minimum) and not claim the rest, or do I just pay them in cash and not claim any of this as an expense? 

Thank you!

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    8y
    Originally posted by @Tim Hertz:

    Hello all,

    I am doing a rehab and I have a sister and a friend I want to hire to help. They will make over $600, but this is more of an "under the table" cash deal. Can I claim $595 (avoiding 1099 minimum) and not claim the rest, or do I just pay them in cash and not claim any of this as an expense? 

    Thank you!

    Here are your options

    1. They volunteer to help you for free. You then make a nice gesture and give them some money. (Does not have to be cash, just not out of your business account.) No tax deduction for you. Their tax situation is a little tricky. They do not have to claim it as income - as long as it was not compensation for services but a discretionary personal money gift, completely out of your good heart and not out of an implied agreement. Not tied to the work. If it was a wink-wink compensation, then they are legally obligated to declare it as income, and you can take a deduction.

    2. (the best) You pay them in a clean way. You deduct it and issue 1099s. They report it as income and pay taxes on it. You can, if you want to, compensate them for the extra taxes by bumping the compensation. No rules broken, and no grey area.

    3. (the worst) You pay them $5,000 but tell the IRS it was $595, trying to hide the rest. This is the worst, because it is borderline fraudulent.

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  • Daniel HymanBusiness Member
    CPA · Milwaukee, WI · Member since 2016 · 2k+ posts · 1k+ votes
    8y

    @Tim Hertz

    In order to set yourself up for long term success in this business, you are going to want to come out from "under the table" and play by the rules. Issue the 1099's for the correct amounts.

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