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This sounds like a mess to keep proper tax records for. Assuming nobody's giving receipts on either side of the transaction, how do you keep proof of what price

This sounds like a mess to keep proper tax records for. Assuming nobody's giving receipts on either side of the transaction, how do you keep proof of what price you paid and what price you sold for? Audits aren't that rare.

paulhauggis 15y ago
what about other cash-only businesses like a barber shop?
- dangrossman 15y ago
  Every one I've been to has a POS computer/register where they enter every sale, no matter how it's paid. Enter the employee ID of the person that did the cut, the service, cash tendered, money drawer opens, provide change if applicable, offer receipt. Same as any other legit business.
  - bigbird 15y ago
    There's a grey market in "zappers", which are POS devices that keep two sets of books automatically. Lots of small retail businesses rely on this type of tax fraud to stay in business.
kevinpet 15y ago
Presumably the email would cover some of this. Records don't need to be something out of CSI, you just have to have them.
- dangrossman 15y ago
  I was just reading a long comment thread about craigslist on reddit yesterday. It seemed like most transactions take place over the phone, not e-mail. Whoever calls first at the right price gets the stuff, a good deal will be gone before the e-mail would be read.
dotBen 15y ago
Not speaking for this individual in particular but in general its unlikely that businesses like this are going to report all of their earnings, are they? You can audit a cash business but with no receipts whole transactions never happened or have a paper trail. I'm not condoning tax avoidance but remember most of the people on HN either earn six figures a year, will do in a few years and/or building startups that might be worth $millions. This guy is making $15-30/hr, doing part-manual labor and has 4 kids and a wife to feed. I guess it's a moral judgement but I feel less concerned if he was to not run all of his cash payments through his books compared to bankers and millionaires who put large amounts of money offshore to avoid tax.
- dangrossman 15y ago
  At the same time, in that income range with that family, his taxes are gonna be 0-10% of his profits at most... without the threat of being imprisoned for tax evasion. If his "typical summer week" is his typical week all year, he alone is already earning more than the median household income for this country... lots of people are self-employed making similar income without benefits. Is it morally OK for a plumber to not report his income? An electrician? What's different about a CL arbitrage business?
  - dotBen 15y ago
    All good points. Part of me, in making my overly-simplistic moral argument, is assuming that his summer months are reflective of seasonal fluctuations and not a consistant representation of his income.
  - jcampbell1 15y ago
    Payroll taxes are 15.3% with no deductions. 0-10% on federal sounds about right, but that is not really an accurate picture for what taxes would do to his cashflow. I agree that it is not morally OK to not report income.
    - dangrossman 15y ago
      Here's TurboTax's tax forecaster, which will do all the work, including the self-employment (payroll) tax: http://turbotax.intuit.com/tax-tools/calculators/taxcaster/ http://turbotax.intuit.com/tax-tools/calculators/taxcaster/ I put in my own numbers for a complicated personal return (business income, capital gains, itemized deductions, etc) and the forecaster agreed with my actual taxes done by a CPA, so it's not making any guesses. Put in married, $45k in business income, 4 kids. The total federal tax bill comes out to $3700 or 8%. Most of the tax bill was offset by the large EIC for having kids. In reality he'd have many deductions to lower that even further, from business use of a home, to any health insurance he buys, to part of his car expenses and mileage...

paulhauggis 15y ago

what about other cash-only businesses like a barber shop?

dangrossman 15y ago
Every one I've been to has a POS computer/register where they enter every sale, no matter how it's paid. Enter the employee ID of the person that did the cut, the service, cash tendered, money drawer opens, provide change if applicable, offer receipt. Same as any other legit business.
- bigbird 15y ago
  There's a grey market in "zappers", which are POS devices that keep two sets of books automatically. Lots of small retail businesses rely on this type of tax fraud to stay in business.

kevinpet 15y ago

Presumably the email would cover some of this. Records don't need to be something out of CSI, you just have to have them.

dangrossman 15y ago
I was just reading a long comment thread about craigslist on reddit yesterday. It seemed like most transactions take place over the phone, not e-mail. Whoever calls first at the right price gets the stuff, a good deal will be gone before the e-mail would be read.

dotBen 15y ago

Not speaking for this individual in particular but in general its unlikely that businesses like this are going to report all of their earnings, are they? You can audit a cash business but with no receipts whole transactions never happened or have a paper trail. I'm not condoning tax avoidance but remember most of the people on HN either earn six figures a year, will do in a few years and/or building startups that might be worth $millions. This guy is making $15-30/hr, doing part-manual labor and has 4 kids and a wife to feed. I guess it's a moral judgement but I feel less concerned if he was to not run all of his cash payments through his books compared to bankers and millionaires who put large amounts of money offshore to avoid tax.

dangrossman 15y ago
At the same time, in that income range with that family, his taxes are gonna be 0-10% of his profits at most... without the threat of being imprisoned for tax evasion. If his "typical summer week" is his typical week all year, he alone is already earning more than the median household income for this country... lots of people are self-employed making similar income without benefits. Is it morally OK for a plumber to not report his income? An electrician? What's different about a CL arbitrage business?
- dotBen 15y ago
  All good points. Part of me, in making my overly-simplistic moral argument, is assuming that his summer months are reflective of seasonal fluctuations and not a consistant representation of his income.
- jcampbell1 15y ago
  Payroll taxes are 15.3% with no deductions. 0-10% on federal sounds about right, but that is not really an accurate picture for what taxes would do to his cashflow. I agree that it is not morally OK to not report income.
  - dangrossman 15y ago
    Here's TurboTax's tax forecaster, which will do all the work, including the self-employment (payroll) tax: http://turbotax.intuit.com/tax-tools/calculators/taxcaster/ http://turbotax.intuit.com/tax-tools/calculators/taxcaster/ I put in my own numbers for a complicated personal return (business income, capital gains, itemized deductions, etc) and the forecaster agreed with my actual taxes done by a CPA, so it's not making any guesses. Put in married, $45k in business income, 4 kids. The total federal tax bill comes out to $3700 or 8%. Most of the tax bill was offset by the large EIC for having kids. In reality he'd have many deductions to lower that even further, from business use of a home, to any health insurance he buys, to part of his car expenses and mileage...