Hello. I am doing some excavation work and the contractor has requested to be paid in cash (two payments totaling $7300). It is a small town and I know him so although there is some concern that I will be left with an incomplete job and out the cash, my bigger concern is being able to prove the expense if audited.
He mentioned that he has a contract for me (and him) to sign and I will of course request and invoice but should I also cover myself by creating additional paperwork to be signed? If so, what would that be?
Any advice would be greatly appreciated.
Have him complete an IRS from W-9 so that you have his taxpayer information. Then, be sure to send him a 1099-MISC by the end of January of the next year documenting the payment. You also send a copy of the 1099-MISC to the IRS. You will use your copy to document the payment you made to him and he will use his copy to document the payment he received.
You need to do this with every contractor that you pay $600 or more to during the year.
Hello Jon. Thank you for the help!
I'm sure he'll tell you not to send him a 1099 otherwise that would defeat the purpose of him wanting cash so he doesn't have to claim it. For this big of job, I would pay by check or card only.
I agree with both previous statements. Sometimes it is advantageous for your particular situation to pay cash and not have the write off. If you are in need to write offs, and your tax situation will be very adversely affected because you do not have enough, that is a different story.
Hmm, weird responses. It doesn’t mean that if a contractor needs cash, he wants to not pay taxes or walk away from a job. Why would you think that? I know a lot that want cash but give sign a contract, give invoice, w9, receive 1099, or are incorporated, of course licensed and bonded, they just want it because they want to pay day labors or get more discount on material pricing. I’ve done a couple when i was starting out, most of them i wanted turn-key, meaning they don’t get paid until job is done or at most 30% when they’re half way done.
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