Shhhhhhh…”paying under the table” isn’t a secret

So, I’m talking to another business owner in the creative realm at a networking event and when she finds out I’m a CPA she naturally asks me a couple questions about deductions. In the conversation she looks around and whispers to me “I pay my ______ under the table because I don’t want them having to pay taxes”.

And then I whispered back “did you know when you pay someone ‘under the table’ you are actually paying THEIR taxes for them?”.

Yep. Every time you think you are paying someone under the table you miss out on taking the deduction on your return.

What happens is your income is higher than it should be, and YOU are paying tax on that higher income while your friend/family member may or may not pay anything on it. And I’m going to bet that you are in a higher tax bracket than they are – so over all its more total dollars going to the IRS.

So what do you do?

Let’s say as a photographer you hire your friend as a second shooter and pay them cash. If it’s over $600 (total annually) then you must issue them a 1099 at the end of the year, it’s a few bucks to file and you can do it in 5 minutes online.

If it’s not over $600 then there is nothing to file and make sure you take the deduction. Always take the deduction and file the silly 1099s.

At the end of the day, if you want to cut your family member/friend a break in some way – round up 10% and that can be your new “secret” way of paying them.