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Do you Have To Report All of your Cash Sales To The IRS
While it may be tempting to not claim cash sales to lower your tax bill it is not a good idea to exclude those cash transactions from your income for several reasons.
First and most importantly is that the under reporting of income including not reporting cash transactions to avoid taxes is not legal. The IRS actively pursues businesses who under report income and who pay in cash to avoid income taxes. Businesses such as restaurants, hair and nail salons, food truck vendors and other independent trades that have a higher number of cash transactions are also more likely to be the target of an IRS audit. IRS focus on cash intensive businesses is further emphasized in their internal audit technique guide for cash intensive businesses. (Need something else here to cap this comment).
Second, showing lower revenue and ultimately lower profits can penalize you if you ever have a need to secure bank financing. Banks are looking for income and profits to support the lending of money for credit lines and to purchase buildings or equipment.
Lastly, when it comes time to sell or transition out of your business, it is important to show the most income and profits possible because most businesses are valued on a multiple of income or profits. By under reporting income or profits and trying to save $1 of taxes today, you could lose 3 to 7 times the amount you attempt to save on taxes based on the multiple upon which your company sells.
The bottom line is that if you are making cash sales, it is better for you and your business to report the income.
This is another Question ForMy Account. If you have a question or are looking for business advisory services or business tax services in Clearwater, Largo, Dunedin, Oldsmar, Lutz or Land O’ Lakes, contact FMA, C.P.A. and let us show you the way!