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Holding multiple one hundred dollar bills

Avoiding Penalties for High-Dollar Cash Transactions

April 15, 2020

Banking has gone digital — you can carry out almost any kind of financial transaction on your computer or even on your phone. That said, there are still transactions you’ll need to do in cash, and any transaction over $10,000 has to be reported to the IRS.

Reporting Large Cash Transactions

Essentially, any cash transaction over $10,000 absolutely has to be declared to the IRS using Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. It’s important to remember that this isn’t just for business transactions — it applies to in-person transactions, too.

This rule also applies to multiple transactions toward the same purchase. Let’s say you sell a piece of your old jewelry for $15,000. The buyer gives you $5,000 to hold the purchase, then comes by a few weeks later with another $5,000 to make the purchase. Two more weeks go by and they pay off the remaining $5,000. Even though no more than $5,000 has changed hands in any given transaction, all that cash was directed toward the same purchase, so you’re over the $10,000 threshold.

Why You Still Need Cash

You’d think that with all the apps we have these days, you wouldn’t need to carry actual stacks of cash to make major purchases. But if you want to buy or sell a car, a piece of jewelry, a watch, a road bike, a piece of artwork, or any number of other private-party transactions, those apps just haven’t caught up. Venmo puts a cap on transactions of $2,999.99 a week. Square Cash’s limit is $2,500. Paypal has no cap on transfers, but you have to connect a debit card and then pay a 2.9 percent fee. In some cases, cash transactions is still your best option.

Filing Your Paperwork Properly

Your accountant will probably handle the paperwork, but you’ll have to let them know about every large cash transaction you make so that everything can be filed on time. You can file that form online or by mail, but if you go by mail, make sure you use certified mail so you can prove that you filed on time.

You’ll also have to file annually. You’ll need a written statement to each person for whom you filed a Form 8300, including the name and address of your business, a name and contact information for your business, the total amount of cash received within a 12-month period, and a statement telling the other party that you reported everything properly. That annual filing is due on the first January 31 after the transaction, not tax day.

Penalties for Not Filing Correctly

If you don’t file the right paperwork by the deadline (both deadlines), the IRS has some serious penalties on the books. The fine is $25,000 or the amount you failed to declare, whichever is greater, up to $100,000. That watch transaction we described above would cost you $25,000, even though you only charged $15,000 for the transaction itself.
You can even be fined on top of the initial penalty, up to $250,000 (or $500,000 for incorporated businesses) and five years in prison. Even if you’re not willfully failing to file, you can be charged $250 per return for failing to file on time and another $250 for incomplete or incorrect information. Moral of the story: make sure your paperwork is in order.

One Final Note: Be Prepared for an Audit

No one likes the “a” word, but there’s an outside chance that it could happen to you. If it does, the IRS will audit Form 8300 like any other tax form, so your records will need to be in order. If your records don’t agree, you could face the full penalties for failing to file at all.

Talk to First Western Trust

For the best financial advice, you need the help of the experience and expertise at First Western Trust. We know that everyone’s financial goals and priorities are different, and there may be transaction types and financial vehicles that you hadn’t thought of that can help you meet your goals. If you’re ready to start taking your investment strategies seriously, get in touch today.

*This post is not intended as tax advice, consult a qualified tax advisor for your situation.

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