11 Proven Reasons To Claim Your Cash As Income
11 Proven Reasons To Claim Your Cash As Income
One of my family’s farm suppliers deals only in cash. He literally has tin cans stashed around his property filled with wads of cash. When he needs the cash for whatever reason, he trots out the back door and rustles around in the bushes, cursing the lack of light until you hear the chink of metal on metal. When he returns, the cash in hand, he smiles the smile of someone who should be on a doomsday show on History television. “Screw the man, Man,”
Death and taxes.
The inevitability of both is epic, spawning countless poems and stories. Neither are fun, even though we rail at them, spitting curses to the wind about their unfairness. Last week I spoke briefly of death and how it made me reminisce and think of what my legacy will be. Today I would like to discuss taxes.
Of the two, only taxes are man-made. No one likes taxes, but they are a necessary evil to achieve the social norms that we enjoy. In Canada, there are two levels of government, the federal and provincial, that can reach into your pockets to tax the income you’ve earned through the year. In fact, only recently, the federal government and the Ontario provincial government recently released their budgets for the year, indicating what they plan to spend their money on, or should I say, what they plan to spend YOUR money on.
Your taxes are more complicated than those of your employees and as such, you’ve earned a reprieve to ensure all of your income and expenses are accounted for. You have more time to reflect on the money you will claim. And that’s the real question isn’t it? Employees have a paper-trail. You’ve given them a slip of paper that shows all their income. In fact, you’ve already reported their hours to WSIB and paid you’re portion of their Canada Pension Plan investment.
But what about you? You’re income is relative in a way. How many times have you been asked by a customer how much of a discount you offer when they pay cash? The Canadian government estimates that the Underground Economy, the cash business that people never claim, is as much as $41 billion per year while other experts peg it at significantly higher.
Of course, you can simply make the argument that everyone else is doing it so why can’t you, but is that such a wise decision? There must be a reason to claim that money isn’t there? And it’s not just to line the pockets of your senators.
11 Reasons To Claim All Your Cash As Income.
1. Borrowing money
Too often when I was at the bank I heard, “Well, I earned $10,000 in cash that I didn’t claim.” Pardon sir, but as far as I’m concerned, if you didn’t claim it, you didn’t make it. That means when it’s time to borrow money and you’ve arbitrarily reduced your income then you may not show enough cash flow to pay back your debts. Your decision to hide that cash could cost you that beautiful house or the new truck that would increase your income all the more.
Not only can you not claim that income to the bank, but you can’t claim the cash as an asset because you can’t show how you earned it. It wreaks havoc on your accounting as you inject it into your operations randomly and without thought to your next year end.
That part about injecting money into the business that you haven’t claimed can get you into hot water with the IRS or CRA. Discrepancies like that can trigger an audit as the federal government realizes there’s something amiss. Eventually, they will ask how you’ve been living under the poverty line for fifteen years and yet you’ve got a million dollar home. Can you say drug dealer?
Whether it’s from a more nefarious reason or just hiding cash for your legitimate work, having assets that don’t coincide with your income will cause the government to look twice at that income. Then the onus is on you to prove them wrong.
3. Mental state
Speaking of the truth. It’s actually a lot of fun. Speaking the truth is good for your well being. Your mental state is soothed. Liars have a tendency to break down as the lies they tell get bigger and bigger. When you establish a habit of telling the truth you’ll feel better about yourself. Your mood will become lighter and you’ll reduce the risk of depression. You will sleep easier and that sleep will keep you more alert and ready to achieve your goals.
Telling the truth makes it easier so you don’t have to keep remembering the untruths you’ve told. When you don’t have to remember the lies, you can focus your energies on something else, like making money.
4. Be more believable
A person in the habit of telling the truth will be more believable. You know it too. You know the salespeople who everyone calls the slimy snake-oil salesman. The only people who believe them are suckers roped into purchases they don’t likely need. As a truth speaking salesperson, you become more believable so when you tell someone what you’re offering them is the best they’ll ever buy, they will believe it. (Because it’s true.)
Because you’re speaking the truth, people will hear of it and you’re going to grow a reputation for honesty. People will come to your business knowing you’re a straight shooter and won’t lead them astray. The reputation you build will only benefit your business as people flock to you.
6. Surround yourself with honest people
When you turn down business from a customer that will only pay you under the table, you’re sending a message. You do things above board. That message is going to travel with your reputation so only like-minded individuals will come to you for your business. That type of client will appreciate your business and understand that the price you set is worth the work you are doing. You will in turn earn more income.
7. Set an example for your employees
Your employees work best when they can trust you. When you’re claiming all the cash that you earn then your employees know you aren’t skimming money off the top. They know that you’re playing fair and will pay them commensurately for the work they are doing as well. They won’t be inclined to skim off the top when those same customers offer them cash to do extra work for them when they are on location or after hours.
8. Set an example for your children
From the day they were born your children have been watching you, learning from your actions. By taking cash under the table you’re teaching your children that it’s okay to omit things. It’s a dangerous precedent to set when you want your children to tell YOU the truth.
9. Your business plan
Claiming all your cash instead of taking it under the table will make it easier to keep your business in line with your business plan. When you’re focused on your plan you will make decisions that are in the best interest of your business. You will be able to gauge whether the income you are making is sufficient to keep your business afloat and whether you need to change the way you do business.
10. Personal pride
Sometimes it’s just nice to say you did something, that you set a goal and achieved it. Doesn’t it give you a sense of pride to say you accomplished your goals legitimately? That you achieved your goals without the help of skullduggery?
11. Social programs
Roads, schools, hospitals, every social program that you can think of. As things go, you will never think about most of them until you have to use them. Imagine no roads except the paths we’ve carved into the ground like deer passing through the woods. Imagine no food safety so you could die from salmonella or worse. Taxes supply for your health care, children’s education, and pretty much everything else you touch or use in a day. Taxes are the evil ugly twin brother of everything you do. You love the one, but can’t live without both.
Claiming all of your cash seems like such an altruistic thing. You claim it so you can pay more taxes on it, right? The greater good. Let’s just for a second look at the numbers. If you were to claim that ten thousand dollars you’d pay around $3000 in taxes. That means your down about $3000.
So we’re talking about $3000? It doesn’t seem like much to risk an audit for, does it? Especially when there are other methods of reducing your taxes. You can use RRSP’s to effectively reduce you taxes as well as other income sharing programs and tax rebates.
Also, one of the biggest things I’ve noticed is that people who don’t claim their income develop a fear of being audited so they reduce the use of their valid expenses too. By not claiming their expenses, they end up paying more taxes on the money they do claim.
Obviously, the best tax advice I can give you is to speak to an accountant, but here I only suggest there are ways to reduce your taxes so you can gain the benefits of claiming all your income. That cash that you took under the table is best served by claiming it. You gain for more than you lose. In fact it’s possible to lose almost nothing and gain all the more. That cash can remain your cash.
What do you think? Do you have another reason to claim the cash?