Contractor wants to be paid in cash
Most Popular Reply
Investor · Orange County, CA · Member since 2014 · 363 posts · 408 votes
3yNope, no chance.
With a $2,000-$3,000 job sure but anything over $10,000 needs to be documented electronically.
Offer to wire or write him a check.
I've heard way too many horror stories of contractors disappearing.
For that much of a rehab, I'd also have a scope of work contract that says how much they'll get paid after what work is complete.
22 Replies
- 3yMark MunsonBusiness MemberLender · Orlando, FL · Member since 2022 · 440 posts · 300 votes
Hi @Rene Bee
I would issue receipts that he signs and progressive/final lien waivers. Have a formal agreement drawn up as well. Best of luck!
- Investor · Orange County, CA · Member since 2014 · 363 posts · 408 votes3y
Nope, no chance.
With a $2,000-$3,000 job sure but anything over $10,000 needs to be documented electronically.
Offer to wire or write him a check.
I've heard way too many horror stories of contractors disappearing.
For that much of a rehab, I'd also have a scope of work contract that says how much they'll get paid after what work is complete.
- Real Estate Agent · NJ · Member since 2021 · 566 posts · 127 votes3y
I may front a contractor some money to start (never cash) from there I only pay him for work completed (need pictures for proof). I have seen investors get scammed by contractors too many times!
- Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes3yAloha,
RUN. Do not walk, away from this GC. Nothing good will come of this if you agree to pay cash. - Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes3y
Quote from @Rene Bee:
Hi Everyone,
My GC want to be paid in cash. Its a gut rehab which will be over $100k. I will not be paying it all upfront. I am not concerned about him disappearing or doing a poor job as I have known him many years. I know paying in cash is NOT illegal but wondering what I should be aware of if I agree to this or if there are any other concerns that could become a problem for me.
Thanks in advance.
There's no logical reason for an honest GC to be paid in cash. Anyone honest is paying their workers by check, demonstrating regular deposits in their business bank accounts for their accountants and the IRS, and paying their vendors by check. Having to truck it on down to the local BOA to deposit a bunch of cash is a PITA.
The only logical reason for a GC to be paid in cash is to have no paper trail of payments made to him. That's a big red flag for you.
Skyline Properties - 3yAlecia LovelessPro MemberMember since 2019 · 3k+ posts · 2k+ votes
@JD Martin My GC also wants to be paid in cash. I’ve worked with him for about 24 years now. I’ve learned to work around his quirks and oddities. We get along great. I don’t worry about him running off or sit waking from me.
In your case IDK. If you get a contract, pay a small amount up front, then check to make sure progress is being made on a consistent, timely basis and only pay out more based upon this manner then you might be fine.
My contractor has personal reasons for needing to be paid in cash. He’s pretty much a 1-2 man show. He has access to tons of sub-contractors who he bills for some of them and I can pay by check for those or others they send me their own invoices and I pay them directly.
You just never fully know the reason why someone might want the cash. If they’re running a large company that way then definitely red flags.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Rene Bee:
Legitimate contractors do not take cash under the table. I would run from this guy immediately and look for a licensed contractor that isn't shady.
It isn't illegal to pay in cash, but you have to wonder why he wants that. The only reason I can think of is that he doesn't want to pay taxes. If he's willing to be dishonest in one area of life, he's willing to be dishonest in others.
The DIY Landlord Book4.7248 Reviews - 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Alecia Loveless:
@JD Martin My GC also wants to be paid in cash. I’ve worked with him for about 24 years now. I’ve learned to work around his quirks and oddities. We get along great. I don’t worry about him running off or sit waking from me.
In your case IDK. If you get a contract, pay a small amount up front, then check to make sure progress is being made on a consistent, timely basis and only pay out more based upon this manner then you might be fine.
My contractor has personal reasons for needing to be paid in cash. He’s pretty much a 1-2 man show. He has access to tons of sub-contractors who he bills for some of them and I can pay by check for those or others they send me their own invoices and I pay them directly.
You just never fully know the reason why someone might want the cash. If they’re running a large company that way then definitely red flags.
as we know anyone who is not a corporation who receives more than 600.00 you need to give them the IRS forms showing payments so you can legally deduct the work or add to your basis. I think thats where the cash payment falls down they dont want those reporting done and if you get audited you could get all those payments made to that contractor disallowed.. - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Rene Bee
Also remember if you pay cash and do not account for it then when you go to sell it your cost basis is $100,000 less..
As mentioned you can pay anyone cash but if you pay them more than $600 you still have to 1099 them.
If it was a few grand ok to pay cash, someone wanted me to pay them $100k - does not matter how long I have known someone that would cause me concern.
7e investments53 Reviews - Rental Property Investor · Member since 2018 · 826 posts · 809 votes3y
@Rene Bee paying cash or non-cash doesn’t limit risk of him ghosting you. You’ll just need to be smart and only pay as services are rendered.
I find it amusing for those who note this is a red flag when a large portion of our cash society do not pay full share of taxes.
I think the percentage is closer to 100% than 0% for people who don't pay full taxes, and that includes most the REI investors on this forum. How many threads have we seen where people give advice on how to maximize business deductions.
It’s a $100k renovation but how much of it is materials va labor? How many people are in the contractors crew? Maybe you buy the materials directly, or make payment after materials are delivered and put labor payments on a draw. Or maybe use this to your advantage and ask for a discount since he’s netting higher profits.
- Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes3y
@Rene Bee He can want cash so what. Lots of people want cash including contractors I have known a long time. Does not matter they get a check and I deduct it as an expense on my return. Any bank will have problems with that much money. You don't know what you don"t know. Steer clear.
Chance are an IRS agent is reading this since this is a public forum and they might be interested in who this contractor is.
- 3yJoe S.Pro MemberInvestor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
If he wants cash, then he can cash your check. :-)
If your bank will not cash the check, then you can go up there with him and they should cash it then.
Explain to the contractor that that’s how you pay for accounting purposes. - Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes3y
Quote from @Rene Bee:
Hi Everyone,
My GC want to be paid in cash. Its a gut rehab which will be over $100k. I will not be paying it all upfront. I am not concerned about him disappearing or doing a poor job as I have known him many years. I know paying in cash is NOT illegal but wondering what I should be aware of if I agree to this or if there are any other concerns that could become a problem for me.
Thanks in advance.
Cash is still supreme. And it is still legal.
Remember, you aren't his daddy or momma. Your obligation to the IRS is yours alone and his is his own. You fill out a 1099 and include it in your return.
If he wants to be paid in cash it's a very simple process.
You have a record of the cash withdrawal from your bank, you make a note in your books. You give him his cash with a receipt that he signs.
I just went through an IRS audit, at my request, because I amended a return. It was a little more complex return, it included property purchases (Subject Tos), rehabs, property sales, property holds, rentals, lease options, an installment sale and assignments. It also had a lot of cash transactions. My local contractors in Phoenix AZ are "unbanked". To the IRS I provided all my bank records with notes and receipts of the cash deposits & cash withdrawals and what each was for, including the receipts, including the HUDs, rents, and so on. It took a mac truck to deliver the paperwork. (Just kidding on that but it was a lot of paper, neatly organized by subject, by date and easy to follow).
At the end of all that, the agent reduced my tax liability by the amount of an average person’s yearly income and awarded me a refund I'm embarrassed to comment on. Even with all of the cash transactions, there was no problem whatsoever because I kept records and receipts. A good businessman is going to do that anyway.
I pay all my contractors in cash, normally. A few won't take cash but that's their business not mine, so I give them cashier's checks. When I buy Subject To, I give the seller $10,000 - $20,000 in cash so they can move and not have to wait for bank clearance. It makes them convinced the gig is over and it’s time to move. I don’t have problems with holdovers. A lot of these are pre-foreclosure and have lost their bank account, so giving them a check is problematic. I just call ahead to my bank and make sure they have on hand what I need. My transactions always go through escrow and with HUDs so everything is documented.When everything goes electronic, we lose our freedom for accepting “easy”. I’m hearing about people losing their bank account because they had a different opinion on something or other. I won’t go that path. Send your contractor my way, I think I like him already.
What to do if your Wells Fargo deposit is missinghttps://www.cnn.com/2023/08/04/business/missing-bank-deposit-wells-fargo-explainer/index
- 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Rene Bee
You’re going to want a tax write off so don’t pay in cash. And your contractor doesn’t want to pay taxes so that’s why he wants cash. It’s a win for your contractor and his workers to pay in cash so they don’t pay any income tax. And a loss for you because you can’t write anything off. Not to mention, many of these people run off with our cash or don’t finish the project. I’d pay more for someone else to do it properly.
- 3yNathan FaseltBusiness MemberRental Property Investor · Iowa City, IA · Member since 2019 · 94 posts · 35 votes
I think this way to much for cash only something seems wrong. I would make sure to report stuff on your end for taxes you don't want something coming back on you. and if you did do cash only you better be getting a very good deal.
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes3yYour Comment: "You’re going to want a tax write off so don’t pay in cash"
Quote from @John Morgan:
@Rene Bee
You’re going to want a tax write off so don’t pay in cash. And your contractor doesn’t want to pay taxes so that’s why he wants cash. It’s a win for your contractor and his workers to pay in cash so they don’t pay any income tax. And a loss for you because you can’t write anything off. Not to mention, many of these people run off with our cash or don’t finish the project. I’d pay more for someone else to do it properly.
I just went through an IRS audit and was granted write offs on all of my cash payments. Just had to have signed receipts. Don't complicate things. ;-) - 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votesWhat was the audit process like? Did they question a lot of expenses? The issue I have is if you pay someone $600 or more in a year, it needs to be to their business or you issue them a tax form and report their work when you file. They hate that and just want to work for cash from my experience. But we’re on the hook for paying taxes if we claim it. What did you do?
Quote from @Account Closed:
Your Comment: "You’re going to want a tax write off so don’t pay in cash"Quote from @John Morgan:
@Rene Bee
You’re going to want a tax write off so don’t pay in cash. And your contractor doesn’t want to pay taxes so that’s why he wants cash. It’s a win for your contractor and his workers to pay in cash so they don’t pay any income tax. And a loss for you because you can’t write anything off. Not to mention, many of these people run off with our cash or don’t finish the project. I’d pay more for someone else to do it properly.
I just went through an IRS audit and was granted write offs on all of my cash payments. Just had to have signed receipts. Don't complicate things. ;-) - Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes3yAs a PM, we are quite simply unable to pay contractors in cash. Further, we require W-9 and Certificate of Insurance, as well as, when applicable, licensing info, to be on file with our office before even processing payment. I guess for some of you, that is one more reason to NOT hire a PM.
As a taxpayer, I find it offensive for any contractor or small business to require cash payment and will not do business with them. Clearly they are not reporting their income to avoid taxes, and/or they have garnishments they choose to avoid, perhaps including Child or Spousal support. It makes me wonder what other shortcuts they are taking that could adversely affect themselves and others. What else are they unwilling to pay? Worker's comp insurance for the people working for them? Commercial General Liability insurance to protect others in the event of an accident? Vehicle insurance? Homeowners/Renters insurance?
As I often preach when discussing Tenant screening, people who have a history of Bad Habits in one area, such as financial, legal, employment, housing, or character, usually will have Bad Habits in ALL areas of their life if you just dig a little. - Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes3y
Quote from @John Morgan:
What was the audit process like? Did they question a lot of expenses? The issue I have is if you pay someone $600 or more in a year, it needs to be to their business or you issue them a tax form and report their work when you file. They hate that and just want to work for cash from my experience. But we’re on the hook for paying taxes if we claim it. What did you do?Quote from @Account Closed:
Your Comment: "You’re going to want a tax write off so don’t pay in cash"Quote from @John Morgan:
@Rene Bee
You’re going to want a tax write off so don’t pay in cash. And your contractor doesn’t want to pay taxes so that’s why he wants cash. It’s a win for your contractor and his workers to pay in cash so they don’t pay any income tax. And a loss for you because you can’t write anything off. Not to mention, many of these people run off with our cash or don’t finish the project. I’d pay more for someone else to do it properly.
I just went through an IRS audit and was granted write offs on all of my cash payments. Just had to have signed receipts. Don't complicate things. ;-)I give them 1099's and report it as expenses, part of the rehab. I don't care if they hate that I report it, it's the law. I spent the money on the project and I want to deduct the cost. They can always go work for someone else. What they do on their end is out of my control. They actually, are very unlikely to be audited.
Think of it this way, if one of my contractors did something I get sued for and I don't acknowledge them as existing, by at least issuing 1099's, the judge will have a very funny look on his face when I say "so and so" did it and I can't prove he even exists or that I haven’t acknowledged him to the IRS. Then the case gets sent to the IRS to investigate what I've been doing by not paying employee taxes. They assume that since I didn’t issue 1099’s they must be employees. Don’t get into telling circular tales with the IRS. They will stop believing you at some point.Granted, that's the worst case scenario, but why open the door to it. I use a lot of cash, I just follow the law and the contractors have to be lawful themselves to stay out of trouble. It's pretty simple.
There are so many reasons to treat it like a business, that it's just not a big deal. - Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes3yYou're becoming their "daddy" and you know best. ;-) I don't take on that responsibility, it isn't mine to command. No one appointed me their judge.
Quote from @Richard F.:
As a PM, we are quite simply unable to pay contractors in cash. Further, we require W-9 and Certificate of Insurance, as well as, when applicable, licensing info, to be on file with our office before even processing payment. I guess for some of you, that is one more reason to NOT hire a PM.
As a taxpayer, I find it offensive for any contractor or small business to require cash payment and will not do business with them. Clearly they are not reporting their income to avoid taxes, and/or they have garnishments they choose to avoid, perhaps including Child or Spousal support. It makes me wonder what other shortcuts they are taking that could adversely affect themselves and others. What else are they unwilling to pay? Worker's comp insurance for the people working for them? Commercial General Liability insurance to protect others in the event of an accident? Vehicle insurance? Homeowners/Renters insurance?
As I often preach when discussing Tenant screening, people who have a history of Bad Habits in one area, such as financial, legal, employment, housing, or character, usually will have Bad Habits in ALL areas of their life if you just dig a little. - 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votesMakes senses. Thanks for the response. I write checks to my contractor’s business as well as all my vendors for big things so I’m covered. However, I hire random people for smaller jobs like cutting trees down and smaller type repairs. I pay them cash, and usually get receipts from them. But I should probably be giving them 1099’s in case their company isn’t legit. I just want to protect myself in case of an audit and need to explain a $1200 tree trimming job from some guy I paid cash to that gave me a questionable receipt.
Quote from @Account Closed:
Quote from @John Morgan:
What was the audit process like? Did they question a lot of expenses? The issue I have is if you pay someone $600 or more in a year, it needs to be to their business or you issue them a tax form and report their work when you file. They hate that and just want to work for cash from my experience. But we’re on the hook for paying taxes if we claim it. What did you do?Quote from @Account Closed:
Your Comment: "You’re going to want a tax write off so don’t pay in cash"Quote from @John Morgan:
@Rene Bee
You’re going to want a tax write off so don’t pay in cash. And your contractor doesn’t want to pay taxes so that’s why he wants cash. It’s a win for your contractor and his workers to pay in cash so they don’t pay any income tax. And a loss for you because you can’t write anything off. Not to mention, many of these people run off with our cash or don’t finish the project. I’d pay more for someone else to do it properly.
I just went through an IRS audit and was granted write offs on all of my cash payments. Just had to have signed receipts. Don't complicate things. ;-)I give them 1099's and report it as expenses, part of the rehab. I don't care if they hate that I report it, it's the law. I spent the money on the project and I want to deduct the cost. They can always go work for someone else. What they do on their end is out of my control. They actually, are very unlikely to be audited.
Think of it this way, if one of my contractors did something I get sued for and I don't acknowledge them as existing, by at least issuing 1099's, the judge will have a very funny look on his face when I say "so and so" did it and I can't prove he even exists or that I haven’t acknowledged him to the IRS. Then the case gets sent to the IRS to investigate what I've been doing by not paying employee taxes. They assume that since I didn’t issue 1099’s they must be employees. Don’t get into telling circular tales with the IRS. They will stop believing you at some point.Granted, that's the worst case scenario, but why open the door to it. I use a lot of cash, I just follow the law and the contractors have to be lawful themselves to stay out of trouble. It's pretty simple.
There are so many reasons to treat it like a business, that it's just not a big deal.
Was your audit a big one, or just a couple questions and wanting to see proof for a couple things they questioned? I need to be prepared for this some day!
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