When you use independent contractors to work on your rental properties and they request (or demand) to be paid in cash (no checks of any kind, no credit cards,..just green bills), how do you handle this situation?

Do you pay anyone in cash whether it is a $50.00, $500.00 or $5,000 expense? Does the amount make any difference? If they write a receipt for their services, does that make it legit?

Homer,

Check or debit card to business checking account here. 100% legal, by the books and taxes paid. I have even 1099 contractors without a TIN -- I just attached copies of my emails requesting their TIN to my copy of the 1099 for my tax records. Let the IRS and the state tax board figure it out. I have done my part.

I pay cash but record it and get an invoice. I tell everyone if I pay them over $600 a year I require a w-9 form because I have to send them a 1099. So if they want to earn more than $600 they have to provide it.

I remember being offered a 10% discount for paying "cash" as in under-the-table and telling them my tax bracket doesn't make that worthwhile to me.

Thinking more about this, a lot of the "old dogs" who I started working for when I wanted to learn in RE, always paid in cash. I wanted to be around them to learn about real estate and never gave much thought to how they paid me.

These were guys in the business 30-40 years pushing 100 or more units.

For some people, there just comes a point where they just don't give a ...

And they have enough money to be able to do that.

I rarely pay in cash, but have in the past. My employee does most of my work now, so it's a moot point, but I still do pay HVAC guy, tree guy, etc. I write them a check. If they don't provide an invoice, I write one for them. I used to always keep an invoice book in my truck and if they didn't have an invoice, I would just write one out and have them sign it.

I have an issue with paying people under the table. I pay taxes on every dollar on which I am obligated to do so and think everyone else should too. If everyone else would, I would probably have to pay less taxes.

I remember years ago working big jobs in construction as a pipefitter.(college kid, but the Pres of the Union was our neighbor so,......) Anyway hundreds of different union workers. Every fri a truck would roll up with a few armed guards and everyone was given their pay in an envelope in cash.

A lot of the older landlords cash a lot of their rent checks and don't report them.

The problem is back in the day you could get away with it, now that everything is electronic its harder...

The IRS naturally knows all the tricks, so don't expect them to believe you only make $25k a year and live in a $500k house and drive a Lexus.

I know an IRS auditor and she loves Chinese food places. She will sit outside and count the customers, figure out the average ticket price and ask to see the register tape. If they really don't match ie they are running two different registers like they typically do...well than they are going to be sitting down with some friendly IRS agents going over all their books, tax returns, and bank records for the last 5 years. That's not my idea of a good time.

The other problem with doing it that way is you can't write off the work done on the property.

I only give one grass guy cash. Everyone else gets a check. Sometimes they ask me to make it out to their personal name and not the company so I do and it's their problem.

I have not had anyone ask me for cash. Most take checks, a few want a Credit Card. Almost everyone I use will do the work and e-mail or text an invoice and let me mail a check.

I cut checks and require an invoice. I use carbon checks so I have an invoice, a check carbon & a record of the check coming through the bank.

I also note the address or unit for which the invoice was written.

Roy,

Your contractor raises a good point about a check cashing fee. There is a good video on YouTube about "the unbanked" called LOOKING FOR CHANGE.

I have a main contractor who distrusts banks so refuses to open a free checking account so he can cash my checks. Sometimes he gets 4 checks from me, one from each entity, so he pays 4x $4 ='$16 at WalMart..

Can you call you bank and help get him an account?

Most contractors who hit me up for cash are trying to avoid paying their taxes and their child support. Like Tim I will not support that.

When he does not pay his taxes the IRS and State will make him squeal that I was his employer. They come to me because I have money and he is broke.

Don't let his problem become your problem.

The "write a check, he endorses it, give him cash" works for me.

IF a LL pays in cash, DO send a 1099!! Other wise the LL is at risk for not sending the form.

Be blameless because they WILL be calling.

sometimes really small amounts like $20, but otherwise paper checks or online bill pay

it is easier to keep track of checks

I only use turn key folks for things I can't or don't want to do, I am with Homer and Jeff, heck give them the cashing fee in the check or vice versa.

I am as straight as a arrow! I pay taxes on all of my income. I report employee's earnings above the minimal level. I report all of my rental income no matter if my tenants pay me in cash, check or money order. I am a long term landlord and building contractor.

After saying the above, still I am audited by the IRS and harassed by all governmental departments and agencies. Why? Evicted tenants love to make up stories and make false reports on me. Also the government never fail to give themselves raises an need supplemental revenue to accomplish this.

So when a independent Contractor asked to be paid in cash, I ask them "WHY"? Truth be told it's not that they don't trust me, I have a AAA+++ million dollar rating, it's because they have issues -- such as:

a) unpaid taxes with a lien

b) unpaid child support

c) unpaid alimony

d) unpaid tickets

e) unpaid judgement

f) liens filed against them and their bank accounts

Robert,

You missed 1 more reason, LOL. I just had a part time handyman do some painting and minor repairs in a unit. He also wanted to be paid in cash so it doesn't interfere with his "un-enjoyment" benefits he's currently receiving since he's temporarily laid off from his Union job. The amount was less than $500 and obviously this will be the last time I'll be using his services.

Roy,

I like Rocking's idea- just give the guy an extra $5 and you're golden.

In the cash debate, every LL must protect themselves by sending a 1099. If the LL does not send the 1099 the LL can be fined for not sending the form.

I disagree, Brad. Why pay the guy an extra $5 for anything? His finances and business practices aren't our problem or concern. Do you think an employer would pay extra fees to an unbanked employee?

And why deal with with sketchy businesses in the first place? I doubt their bonded or insured. That could cause you big problems. They're not professional. And if you have to sue them, good luck!

And you don't have to provide 1099s to incomporated businesses.

I don't see the advantage of dealing with these kinds of vendors vs. established businesses.

As I carefully re-read Roy's post it seems his contractor is not wanting to avoid taxes or be paid under the table. His problem is the five dollars to cash each check.

Banking has changed dramatically over the last few years and many people cannot get an account at a bank. Again I recommend the movie on YouTube called Looking For Change so a good landlord or investor understands what his residents and contractors are facing as they try to handle their money.

Some local factories are now paying their employees by putting their pay on to Visa card – One reason, so the employees no longer have to pay a check cashing fee.

An extra five dollars to keep a decent contractor is no big deal to me.

I have been doing this since 1997 and I have never had a contractor ask me for a $5 fee. I would laugh if they did. Their job is to do the work and my job is to pay them. Any cost-of-doing-business expenses that they incur are not my concern.

And if my not paying that $5 was a dealbreaker, that would speak volumes about the contractor. And that would also mean that they would be willing to walk away from a good customer over $5.

But again, no insured, established contractor would ever even bring this up.

I imagine Roy's "contractor" is a good ol' 'Bama boy with some rust on his pickup and a crew consisting of his cousin - trash hauler, mower, cleaning lady, painter...

If I'm paying somebody $50 to haul a load of trash, $5 is a reasonable request.

Check cashing used to be free. No more.

BRAD

I've got one good ole' boy who is doing a bit of lawn care for me. He is retired and cutting the vacant lot across the street from his place until I get a place built on it. He also lets me know when monkey business is going on at my property next door to him. Good to keep him in beer money.

Anyway, he would much prefer to be paid in cash. Sorry, no can do. I need to track what I pay you for my taxes. It should not amount to more than a $1000 over the summer though, and his pension is pretty small.

My local savings and loan is small enough that he can take the check into there and they will cash it for him even though he doesn't have an account with them. It is enough that I have an account with them, and that the check is drawn on my account.

very very rarely. a check makes it easy to keep records. those without checking accounts are not my problem. i also let them know they can expect it in the mail if i happen to be gone when they are done. ALL tradesmen are required to deliver an invoice with their name, address, phone number and the scope of work on it to be paid. no exceptions.

everyone who works for me gets paid by check and when i get to it...which means they might need to wait a day or so. if they are so broke they need same day payout they need to examine their business plan.

Steve[MA]...expect a call from the bank on that one. the new know your customer laws and the cash transaction reports make that a screaming red flag