Question for accountants or ones with direct experience please!!

[Justin Sullivan]

Hi,

So a partner and myself are entering into a partnership of flips. We have plans to create the LLC for the future projects but this first one we are just running through on of his businesses. We have an idea of how to structure it for tax purposes for payments and expense my only question is for cash payments.

Where I am from we can find some day laborers who are paid cash. For these payments, Probably $2,000 for entire project, how should we calculate these for tax purposes? Can we say they are cash payments to different day laborers less than 600? If one of us has to take the expense how could we calculate the tax on this? Like if we have to pay the taxes? 

Our main thing is we want to taxes liability for cash payments to go against the deal and not come out of either of our profits. I have a construction company which we may run the renovation through and then the cash payments would run through that. Then I would want the extra tax expense to cover that so once again the money comes our pre-profit and not out of our profit.

Anyone who has experience with this feel free to chime in.

[Aaron Porter]

Definitely going to have to agree with @Wayne C. here.  As much as day laborers are cheap, they are technically illegal to use and giving advice on how to write off this as an expense which it is, but still an illegal expense could be construed as a aiding and abetting.  I don't think asking this on an online public forum is going to get you the answers that you are looking for.  

If you are going to use day laborers and unlicensed contractors to do some or all of the work on your properties you may want to take into account that your insurance coverage will not pay out when an accident happens during the course of breaking a law.  So if one of the workers hurts themselves and sues you or needs medical attention they are not eligible for workers comp nor filing a claim against any of the liability coverages that you, or your general contractor have.  Just something to weigh in your mind and decide what your level of risk you and your business partner/partners are willing to take on.