11 March 2008 No Comment Print This Post  Email This Post

I’ve worked with people in the past who deal only in cash. A used furniture salesman here, a writing client there — there are many people who don’t want their money to actually be reported. I’ve read plenty of frugal writers who recommend taking advantage of cash only deals in order to get a break on prices. At the bare minimum, you’re often able to remove sales tax from the equation.

I’ve used it myself. When I was buying a bed for my first apartment, I wound up paying almost half price for a used mattress and box spring because I could pay in cash. The salesman didn’t even bother ringing it up — there was absolutely no paper trail for that bed.

In general, though, I try to avoid cash-only situations. It just makes things easier come tax season — no having to remember which income you’re reporting and which you can’t afford to mention. Furthermore, I don’t wind up paying more on my taxes because of that other income, as long as I have a paper trail for my expenses as well (no paying cash and not getting a receipt). I’m a stickler for getting my tax return done without any question of complicated numbers. I’ve seen the time and money a small business can waste during an audit if they can’t produce a paper trail for income and expenses, and once a business has been audited, the likelihood of future audits go up. The IRS assumes if there is hanky-panky in the bookkeeping once, it will be there again. (I worked for a business that had forgotten to pay taxes in the 80s, and the IRS audited them on a fairly regular basis, including twice while I worked there. It’s been over 20 years at this point and the tax man still checks in regularly with that company.)

There are some situations where a little bit of untracked spending won’t get you in trouble (as long as you don’t try to claim such expenses as deductions on your tax return). Most used or secondhand purchases won’t incite the wrath of the IRS. Sales tax has already been paid on such items and if you’re not handling all of your purchases in such a manner, it isn’t an issue. Large purchases, such as cars, though can be problematic — especially since you do have to list the price you paid when filing for a new title.