Help with a Tax issue

[JakobHarper]

I have a cousin that has been helping me /w the business and I have been paying him under the table (at his request). He only worked for the summer until he went back to college. He is now gone and Im working solo again. I wrote him only one check over the course of the summer because it was really inconvient for me to get to the bank that day. Well comes to find out that my cousin was receiving unemployment compensation and has been all summer, along with my under the table pay. Ok so he comes forward and tells me about that single check I wrote him a few weeks ago and says he doesnt want the IRS to find out about it because that might get him in deep with the gov. and department of labor or w/e. What should I do? I let my accountant handle all my income/expenses. I dont want to drag myself into any trouble either. But he is my cousin and I want to look out for him. How can I resolve this issue? By the way the check was for 1,240$. So yes it's over the 600$ limit. Please tell me what I should do to protect him and I've learned my lesson with under the table employees as I was paying his taxes the whole summer long.

[wickedinhere]

Tell your accountant about it they sould know how to handle it. I would show him as contract labor he should have been honest with you from the beginning. Maybe he shouldnt have taken the check and waited for cash live and learn. What ever you do make sure you dont get in trouble for him cause he would not take the fall for you.

[buster57]

You can tell your accountant not to write off the $1240 and that will be the end.

What you have is no write offs for any of his wages.

If the IRS comes to your business(very unlikely) there is no record of payment to him and the check was for payment of private debt.

Do what you think is best. This thing happens all the time. I would be more worried about some one getting hurt on the job then the IRS.

[JakobHarper]

Thanks for the quick replies

Thanks for the prompt replies and that sounds like a logical solution. Are there any more ways at looking at this situation? I like to cover my bases and sometimes you have to run around all of them to make sure you're not missing something that can bite you later. Thanks.

[buster57]

If you do not claim it as an expense the government likely will not have an issue with you.

Yes -technically you are not paying employer's share of several taxes, but from a high level-don't sweat it.

The amount is very minor. Don't do it again and you will not lose any sleep.

BTW-what you tell your account can be used against you in court. Unless your tax preparer is an attorney, there is no privileged communication between the tax payer and his tax preparer. CPAs are not lawyers.

[Edlawncare]

If you pay someone ( you should not ) under the table you lose the deduction and can not put him on the books. The money you give him should be treated as a gift. In RI even contract labor has to have a licence if you pay someone and give them a 1099 form.

I agree with the statement about him getting hurt. Cousin or not who was going to pay the bills if he got hurt? YOU

[6'7 330]

Firstly, advertising the issue for the world to see might not have been very prudent.

Some advise, you may go a while and not get caught paying employees under the table. But then again, you might have a under the table worker get hurt on the job, no workers comp=you're screwed. Payroll tax evasion is a serious offence; don't let anyone fool you it isn’t. And the state boyz, at the department of employment security like their cut of the pie for unemployment .

A couple things to consider , there is no statue of limitations on payroll tax fraud, and the cash you pay is lost deductions. In the long run you're better off having you're accountant setting you up with the IRS, and you're state and becoming a legal employer.

[Fvstringpicker]

As said previously, don't write it off as a business expense. When you do, its prima facie payroll subject to withholding and matching taxes. You can claim its contract labor but the burden shifts to you to prove it was paid to a legitimate contractor and not subject to witholdings. Then you face the 1099thing. The small amount will more than likely be considered immaterial.

RWS, CPA

[buster57]

Fvstringer-I think that new business owners need to focus on their business operations and not worry about IRS.

Tough to do.

When you are new at this stuff it is hard to understand what is necessary and what a necessary evil is.

Good market for a CPA to help people out. A seminar or two could really benefit new business people.

Meanwhile-cash flow and profitability....