Paying Your Business Expenses, Home Improvements, Rental Property Repairs, Medical Bills or Charitable or Church Donations By Cash? Think Again!
You want to purchase some used office furniture on craigslist for your office and the seller wants cash as payment.
You need to repipe your home or rental property and the Plumber wants $5,000 for the job. You ask him for a cash discount if you pay cash and he replies, “okay $4,500.”
You drop cash every week in the box passed around at church.
You pay your Dentist, Doctor, psychologist or Optometrist with cash.
What is Wrong with These Scenarios?
The IRS is no longer accepting cash as proof of payment in a tax audit even if you produce receipts.
How Do I Know This?
Having represented 30-40 clients in IRS Audits over the past three years qualifies me!
In an IRS Audit, the Auditor simply won’t allow you a tax deduction for Business Expenses, Home Improvements, Rental Property Repairs, Medical Bills or Charitable or Church Donations paid by Cash.
The IRS wants to discourage the use of cash since it’s not traceable and they like paper trails. If you pay cash to get a cash discount, IRS realizes that the party receiving the cash isn’t as likely or likely won’t report it. The IRS is wise to this!
If you pay cash to get a cash discount, IRS realizes that you aren’t likely to 1099 the Plumber or Electrician who repairs your rental property or the Attorney you paid cash to for a living trust and will. Again, the IRS like paper trails so they can collect tax from the party getting paid. This is their way of encouraging taxpayers to not pay by cash by disallowing tax deductions, paid by cash that are claimed on tax returns, in an IRS Audit.
Who are they to tell me that I can’t pay by Cash to take advantage of a cash discount? They’re the IRS! Powerful still!
Here’s What The IRS Currently Wants to Support Tax Deductions Claimed on Tax Returns:
The IRS wants invoices (receipts) and proof of payment such as copies of canceled checks, debit card charges (from your bank statement), credit card receipts and statements or records of payments by Paypal or Chase Quickpay. Paying via these methods and retaining invoices (receipts) will usually suffice.