How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Merlo Your Own Question

Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
9573734
Type Your Tax Question Here...
Merlo is online now
A new question is answered every 9 seconds

Someone wants me to pay them cash and to say it is consulting

Resolved Question:

Someone wants me to pay them cash and to say it is consulting fees which is in essense what it is but they are not a business. We are talking several thousand dollars. Doesn't sound legal to me. Is it legal?
Submitted: 4 years ago.
Category: Tax
Expert:  Merlo replied 4 years ago.

Hello JA Customer,

 

What type of services exactly did this person perform for you?

 

Did he perform these services for you personally or were they performed for a business that you own?

 

 

Customer: replied 4 years ago.
I am a construction manager for a meditation center and this person is a member of the meditation community and is going to install the HVAC system for the pagoda we are building. He wanted to bid the job using his father in law's company(an HVAC contractor) as the contractor but his father in law had a stroke and it is not possible any more so he has cooked up this idea that he can still do the work and collect a lump sum when he finishes. All we have to do is say that they are consulting fees. He has done a major revamping of the system and so he has indeed done a bit of consulting but he doesn't have a business and is not licensed.
Expert:  Merlo replied 4 years ago.

Hello again JA Customer,

 

Thank you for the additional information.

 

The person who did this work for you does not actually have to be established as a formal business, at least not for tax purposes. There are many people who operate as sole proprietors or independent contractors with no formal business in place.

 

However it seems obvious to me that the reason he wants to be paid in cash is that he does not want to report this as taxable income on his own personal return, which he would be liable for. If you pay him in cash, then you run the risk of having this disallowed as a business deduction of the mediation center, as you really have no concrete proof that he was paid. The most you could obtain from him would be a signed receipt, but that is simply not good business practice, particularly when you are talking about an amount that involves several thousand dollars. The mediation center should issue this person a check for his fees from the business account to ensure they have no problems at the end of the year with deducting this as a business expense.

 

You also need to have this person fill out a W-9 form for you before you issue him any payments. Any time that you pay an independent contractor $600 or more for the year for services they have performed for your business, you are required to issue them a Form 1099-MISC at the end of the year to report the amount they were paid. On the W-9 form he needs to supply you with his name, address and social security number, as you will need this information at the end of the year to complete the 1099 form. You should also keep a copy of that 1099 form in your permanent records as proof of the information he supplied to you.

 

 

Thank you JA Customer

 

 

Customer: replied 4 years ago.
Just one more thing. He will be paid while he is doing the work as an employee. The difference between a set amount and what we wind up paying him will be the check he is to receive. In other words he will be filling out a w-2 and a w-9. Is this still kosher?
Expert:  Merlo replied 4 years ago.

Hello again JA Customer,

 

That type of situation is frowned upon by the IRS and could end up getting your company in trouble.

 

The IRS requires that you make clear distinctions between people who are your employees and people who are independent contractors. When you pay someone as an independent contractor, the employer does not have to withhold any taxes and they do not have to pay the employer's normal share of SS and Medicare.

 

The only way that you could get by with issuing this person both a W-2 as an employee and a 1099 as an independent contractor is if the services he was performing for you as an independent contractor were substantially different than the services he provides as an employee. If his normal duties as an employee include repair, installation and maintenance work on HVAC systems, and those are the same services he provides to you outside of the normal work routine, then you could not separate those fees. The entire amount you pay to him would need to be reported on the W-2 form with the appropriate taxes withheld.

 

An example of a situation where the services would be considered substantially different would be if you have an employee that works for you as a maintenance person, but on the side he performs service for you as an IT consultant and he offers those same IT consulting services to other businesses or individuals.

 

 

Thank you JA Customer

 

 

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Merlo and 4 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.