Thinking about “paying under the table” for labor and services? Is it beneficial to pay a contractor, vendor, or employee “off the books?”
Also known as “paying under the table,” unreported compensation to an employee or contractor may seem like the easy way to go, but is it the best practice for your business?
The short answer is no. The long answer will depend on the nature of your business and who you make your payments to.
Payments made for labor and/or services should always be recorded properly in your bookkeeping. Doing so not only keeps your books and reporting accurate but can also have major implications on tax liability for your company.
In addition to potential fines from the IRS for not reporting correctly, the liability of “paying under the table” for the expense still lies on the business.
Are you an LLC who regularly makes cash payments to contractors? Those withdrawals from the bank will still need to be accounted for; those payments will end up being calculated as an Owner’s Draw. And who pays the tax liability on that?
Fines for incorrect reporting and increased tax liabilities are only some of the hidden costs of “paying under the table.” And those are only the ones that affect the business. Individuals accepting payments in this way may also be subject to fines and penalties for not reporting their own income properly.
Do you need help distinguishing who is an employee and who is a contractor? Who will receive a W2 vs a 1099? How to properly file and pay taxes for these expenses? A certified bookkeeper can answer these questions.
Contact us today for a consultation.