Ditching Your Bank? Here's What You Need to Know About Going Cash Only.

 In a world where banking instability occasionally makes headlines, recent events such as the seizure of First Republic Bank by regulators, as confirmed by the Federal Deposit Insurance Corporation (FDIC), have led some individuals in the United States to explore alternatives to traditional banking for safeguarding their savings. For many, the solution seems apparent: relying on tangible cash.

This inclination towards cash is not unfounded. Take, for example, the experience of my great-grandmother. After her passing, we discovered small amounts of money meticulously stashed in her freezer—a testament to her inherent distrust of banks that persisted even in her later years, shaped by the enduring impact of the Great Depression.

And she is not alone in her sentiments. Numerous clients have shared similar stories of uncovering secret stashes of cash concealed within the pages of books or under the protective layers of mattresses, carefully accumulated by their loved ones as an alternative to traditional banking. In some cases, even a humble used coffee can has served as a makeshift safe deposit box, providing a sense of security that transcends the financial system.

To be clear, I want to emphasize that I do not harbor concerns about the imminent collapse of the U.S. banking system—it is an unlikely scenario. However, I empathize with those who may harbor apprehensions and are taking steps to rely more on cash while minimizing their dependence on banks. If you find yourself contemplating the path of living beyond the confines of the traditional banking system, it is crucial to familiarize yourself with the tax implications and other relevant requirements associated with such a lifestyle shift.

By delving into the intricacies of tax obligations and related compliance measures, you can ensure that your financial decisions align with legal and regulatory frameworks. So, as you navigate the prospect of a bank-free existence, arm yourself with the knowledge needed to make informed choices and confidently embark on this unconventional financial journey.

Income

While receiving payment in cash is legal and does not imply any illicit activities such as tax evasion, it does invite a higher level of scrutiny, necessitating meticulous record-keeping on your part.

It is essential to go beyond just maintaining a sales ticker if you engage in selling goods or services. Tax authorities may rely on various factors, including industry norms, to identify potential discrepancies between the income you receive and the income you report. To address this, consider annotating your receipts to explain any fluctuations in income, such as those caused by seasonal fluctuations or changes in demand. Keep detailed contemporaneous records of sales, including dates and amounts. If you frequently handle substantial amounts of cash, regularly reconciling your cash inflows and outflows is a wise practice.

Moreover, if your business involves high-value transactions, it is crucial to be familiar with cash reporting requirements. If you receive more than $10,000 in cash during a single transaction or through two or more related transactions—typically within a 24-hour period—you are obligated to file Form 8300 with the IRS. Even if these transactions occur over a span exceeding 24 hours, they are still considered related if you are aware, or have reason to believe, that they are connected.

By diligently adhering to these guidelines and understanding your obligations, you can navigate the intricacies of cash-based transactions, ensuring compliance with tax regulations and avoiding unnecessary complications.

Expenses

Regardless of the payment method, legitimate expenses remain valid expenses. If you choose to use cash for payments, it's crucial to obtain receipts, and the more detailed they are, the better. As mentioned earlier, it's essential to annotate the receipts if the costs exceed the usual amounts, such as in the case of a sudden increase in the price of eggs. Keep these receipts for at least as long as the statute of limitations requires, including for items subject to depreciation or amortization.

When cash payments involve compensating employees, ensure that you have accounted for all appropriate payroll deductions and provide your employees with a payroll stub that clearly states their payment amount and any corresponding deductions. Again, specificity is key. Simply showing the gross and net amounts is insufficient. Include information about the number of hours worked during the pay period and any benefits provided. This practice not only promotes good recordkeeping but may also be legally required. Certain states have specific regulations regarding the information that must be included on payroll stubs to comply with tax and labor laws.

Keep Worlds Separated

Maintaining separate bank accounts is a common practice among business owners to distinguish expenses and income. Even if you don't use credit cards or bank accounts, it's crucial to keep your business and personal items separate. By keeping meticulous records and making notes of any unusual transactions, you can ensure clarity and accuracy in your financial records. This practice not only promotes organization but also helps in identifying any discrepancies or irregularities that may arise.

Paying Your Taxes With Cash

There are various options available for paying your federal taxes in cash, although state procedures may differ.

The IRS suggests exploring alternative payment methods, such as using a money order or making an online payment with a prepaid debit card. However, if you prefer to pay with cash, you can do so at an IRS retail partner. It's important to note that transaction fees apply, and these retail partners only accept payments up to $1,000.

For cash payments exceeding $1,000 or if you feel more comfortable paying the IRS directly, you can visit an IRS Taxpayer Assistance Center (TAC). To ensure a smooth process, it is necessary to schedule an appointment 30 to 60 days in advance (call 844-545-5640, Monday through Friday, from 7 a.m. to 7 p.m. local time). It's essential to call ahead as many TACs operate on an appointment-only basis, and not all TACs accept cash payments. If your payment exceeds $10,000, the IRS may contact you to verify the details of your payment. On the day of your appointment, the IRS will count the cash and provide you with a receipt.

In terms of perception, the IRS assures taxpayers that payments made with cash are treated no differently than those made through other payment methods, ensuring fairness and equality for all taxpayers.

Mailing Cash

While it's not advisable to mail cash due to security concerns, the U.S. Postal Service recommends opting for a more secure option like a money order. It's important to note that mailing cash itself is not illegal, and there are no specific restrictions on the amount of money you can send domestically or internationally. However, if the cash being transported exceeds $10,000 and involves international transactions, it must be reported to U.S. customs authorities using a Currency Reporting Form (FinCen 105). Failure to comply with this requirement can lead to significant penalties, as outlined by U.S. Customs and Border Protection (CBP).

Traveling In The U.S. With Cash

When traveling with cash, it's crucial to exercise caution and take measures to ensure its safety. To avoid drawing unnecessary attention, it's advisable to secure your money discreetly and not make it obvious to others that you are carrying cash.

Within the United States, there is no specific limit on how much cash you can carry while traveling, even when flying. However, it's important to be prepared for potential questioning. If you encounter a situation where you are pulled over by law enforcement while driving or flagged by the Transportation Security Administration (TSA) at an airport, it's recommended to have a plan in place. This includes being honest in your communication, providing receipts if available, and avoiding overt attempts to conceal your money, such as using hidden compartments in your bags.

Dan Alban, a senior attorney at the Institute for Justice, advises against giving consent to search your vehicle. He explains that if law enforcement officers are determined to search, they may find a reason to do so regardless, but by not giving consent, your lawyer can challenge the search later.

While Alban suggests not remaining completely silent during a traffic stop, he advises keeping your responses concise. Provide your license and registration, but avoid engaging in unnecessary conversation about your travel plans or the purpose of your trip. In some cases, responding to questions with questions can be helpful, according to Alban.

Furthermore, Alban recommends documenting as much of the encounter as possible during a traffic stop, preferably through video recording, though audio recordings can also be beneficial. This can serve as valuable evidence for future reference.

If law enforcement suspects that your cash is linked to criminal activity, they may take steps to seize it. Similarly, if the TSA suspects a potential connection to a crime, they may involve law enforcement authorities, as the TSA itself does not possess law enforcement powers.

It's important to be aware that under civil forfeiture laws, law enforcement agencies can seize your money without charging you with a crime. Typically, the burden of proof required for civil forfeiture is lower than that of criminal forfeiture. For example, in Pennsylvania, where I reside, the government can legally seize property believed to be connected to illegal activities without charging the owner with a crime.

Traveling Outside Of The U.S. With Cash

When it comes to crossing the border, the United States does not impose any limits on the amount of cash you can carry. However, if you are traveling with cash or cash equivalents worth $10,000 or more, it is mandatory to report it to U.S. customs officials using the FinCen 105 form, regardless of whether you are entering or leaving the country. Failure to report your cash can result in confiscation by the authorities.

If you are traveling to or from another country, it's important to familiarize yourself with the requirements of that specific country before your departure. For instance, when entering or leaving the European Union (EU), all travelers must complete a cash declaration if they are carrying €10,000 or more in cash or its equivalent. Failure to comply with these regulations may result in the seizure of your undeclared cash by EU authorities.

Maintaining meticulous records is crucial when transitioning to a cash-oriented lifestyle. In today's digital era, where financial apps and electronic payments are prevalent, adapting to a cash-only approach can be challenging. It is essential to prioritize obtaining and retaining receipts for all transactions. Additionally, documenting your activities becomes vital. Keep travel logs with detailed notes to substantiate expenses, including dates and purposes of travel, and maintain income diaries to record tips and other forms of income that might otherwise go unreported.

Despite shifting away from traditional banking, embracing technology can still enhance your financial organization. Utilize software and apps that enable you to conveniently capture photos of receipts and instantly record income and expenses.

Lastly, seeking the guidance of a knowledgeable tax professional is highly advantageous. Ideally, find one with experience in handling cash transactions. They can help identify potential red flags, offer suggestions to streamline your cash-only lifestyle, and provide valuable insights to navigate tax obligations successfully.

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