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I had several hundred dollars of service work performed by the head of a small company. This company is currently licensed and insured according to the state website. I received the bill on company stationary. A post-it note attached says to make the check payable to the main owner's personal name (rather than the company's name).
Perhaps the owner is trying to avoid taxes by keeping my payment "off the books."
What risks are there for me in making the check payable in the owner's name rather than the business's name?
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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It sounds like they don't have a business bank account. Even if licensed, if over $600 in a year you are required to do a 1099 at the end of the year to report the payments to the IRS. Your state will not be happy if they find out that no sales tax was collected, and they could come after you for it plus penalties if that service is taxable. I think if discovered, it would be a lot harder on the owner/company than on you.
One concern is if the work performed turns out to be faulty and causes damage. Do I lose any consumer protection by writing a check payable to the owner's name? For example, the small claims judge thinking I am in league with paying this business "under the table"?
It sounds like they don't have a business bank account. Even if licensed, if over $600 in a year you are required to do a 1099 at the end of the year to report the payments to the IRS. Your state will not be happy if they find out that no sales tax was collected, and they could come after you for it plus penalties if that service is taxable. I think if discovered, it would be a lot harder on the owner/company than on you.
It's not the customers job to make sure the owner is paying taxes and they will not come after the customer, this is completely incorrect. Many contactors don't have business accounts and have personal accounts they use, its not at all uncommon. As long as you have receipts and a warrenty if one is offered your all good
None. The work is warrantied by the company/license holder. As long as you can prove the bill was paid with corresponding check you have no liability. If you 1099 you may be considered a EMPLOYER for the period of time he worked for you. you do not 1099 a company.
I had several hundred dollars of service work performed by the head of a small company. This company is currently licensed and insured according to the state website. I received the bill on company stationary. A post-it note attached says to make the check payable to the main owner's personal name (rather than the company's name).
Perhaps the owner is trying to avoid taxes by keeping my payment "off the books."
What risks are there for me in making the check payable in the owner's name rather than the business's name?
Red flag, big time.
Show me someone who is going through elaborate pains to cheat the Federal government, and I'll show you someone who will go through elaborate pains to cheat you.
Further, while the amount of your transaction is trivial, you could be deemed in collusion for tax evasion. Yes, the odds are really small, but they're there nonetheless.
Show me someone who is going through elaborate pains to cheat the Federal government, and I'll show you someone who will go through elaborate pains to cheat you.
Further, while the amount of your transaction is trivial, you could be deemed in collusion for tax evasion. Yes, the odds are really small, but they're there nonetheless.
I would venture to bet about 50% of contractors at least ask if you can make the check out to them. For all you know they are most likely not using a EIN/TIN and everything is falling under their own social anyways even if they have a business name it could be a sole proprietership in which case they use tehir social and it wouldn't matter one way or the other. Don't get me wrong I get it I'm the customer I'll pay the business if I want to but personally being a small business person I know banks can be headaches with business accounts so I would be more than happy to pay them directly as long as the job is done well.
As for tax evasion completely off base, no way the IRS is going to go after joe schmo for paying a gutter cleaner directly for a couple hundred bucks. Its not my job as a customer to police the community for the IRS its the business owners responsiblility to pay taxes. To prove how outlandish that idea is paypal doesn't report transactions for paypal members unless your accont exceeds 200 items sold and $20,000 which is a pretty hefty sum. If there was any risk of the IRS holding people responsible for others not paying their taxes paypal would not have that policy
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