Cash might be king in the business world, but it often provides challenges when it comes to documentation.
If you pay lots of your vendors in cash, then it is essential that you have good records to make sure those payments hold up as deductible in the case of an audit.
This is also true if you receive lots of cash as payment, as far as documenting your income accurately.
So what’s a cash-paying entrepreneur to do?
First, have the vendor send you an invoice for those services so you have a record of what was performed in exchange for cash payment.
Second, get a W9 from your vendors BEFORE you pay them any money, and send them 1099s for the total amount you paid them for the year.
This allows the IRS to match your deduction to someone else’s income, so they know where to go for the tax bill.
Those are two simple strategies to making sure your cash payments hold up as deductible if you get audited.
For those of you who receive lots of cash as income, it’s the exact reverse!
Use an invoice or some form of receipt for whatever you sell, and issue one with each purchase. This will go a long way in making sure you have accurate cash receipts!