Paying a sub-contractor in cash

Do it Yourself 12 Replies

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??

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.

Jon Holdman, Flying Phoenix LLC

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.

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...

Medium lishproplogoJ Scott, Lish Properties, LLC | [email protected] | http://www.123flip.com

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.

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

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

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.

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 :)

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

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?

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...

Medium lishproplogoJ Scott, Lish Properties, LLC | [email protected] | http://www.123flip.com

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.

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