How to correctly report taxes for day laborers paid in cash - landscaping business owner
I run a small landscaping company and have been picking up day laborers from the local hardware store parking lot to help with jobs when we're short-handed. I typically pay them $80 cash at the end of each day, and it's almost always different people each time. The thing is, I've never paid any single person more than $600 in a year (honestly most I only use once or twice), but when I add up all these cash payments for the year, it's actually around $7,500 total. I'm trying to figure out my tax situation here. Since I never paid any individual more than $600, I'm assuming I don't need to issue 1099s to them as independent contractors. But that seems weird since the total labor expense is significant. What's the proper way to handle this on my taxes? I want to do this right, but I'm confused about how to document these expenses since I paid in cash from my personal account rather than my business account. Can I still claim these as business expenses? Do I need documentation beyond my own records of the payments?
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Isaac Wright
You're in a common situation for small landscaping businesses. Even though you didn't pay any single worker more than $600, these payments are still considered business expenses that you should document and deduct on your Schedule C. Keep a simple log of each payment - date, amount, and what service they provided. While you don't need to issue 1099s for workers paid under $600, you still need to document these expenses to claim them as business deductions. The IRS doesn't care which account you paid from (personal or business), only that these were legitimate business expenses. For future reference, it's better to pay from your business account to maintain cleaner separation between personal and business finances. But either way, document everything - even simple notes with dates and amounts will help substantiate these deductions if you're ever audited.
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Maya Diaz
•What about if I paid them more than $600 over the year but spread across multiple jobs? Do I need their SSN for a 1099 then? These guys don't exactly carry ID and I'm not sure they'd give me their real info anyway...
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Isaac Wright
•If you pay any individual worker $600 or more during the tax year, you're required to issue them a 1099-NEC, which means you need their SSN or Tax ID number. The $600 threshold applies to the total paid to each person regardless of how many separate jobs they worked. For workers reluctant to provide their information, explain that it's a legal requirement for both parties. They can complete a W-9 form which you should keep on file. If someone refuses to provide their SSN or Tax ID, you're technically supposed to implement backup withholding at a rate of 24% on their payments and remit this to the IRS.
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Tami Morgan
After struggling with this exact situation in my small painting business, I found an amazing solution with https://taxr.ai - it seriously saved me hours of headaches. I was in the same boat - paying day laborers in cash, unsure what documentation I needed, and worried about an audit. Their system analyzed my payment records and showed me exactly how to categorize these expenses properly on my Schedule C. It also helped me create a simple system for tracking future cash payments that satisfies IRS requirements without needing to get SSNs from workers I only use once. The best part was it flagged when I accidentally used a few workers enough times that they crossed the $600 threshold - potentially saving me from major issues.
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Rami Samuels
•Does it work for other types of businesses too? I have a food truck and sometimes pay people cash to help during big events.
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Haley Bennett
•How exactly does this work? Do you just upload your records or something? I'm kinda skeptical it could really help with cash payment situations since there's no paper trail.
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Tami Morgan
•Yes, it works for all types of small businesses - including food trucks! It's especially helpful for situations with irregular workers and cash payments. The system adapts its guidance based on your specific business category. For your question about how it works - you basically input your payment records (even if they're just your own notes), and the system analyzes them against tax requirements. You don't need a formal paper trail - that's actually one of the best parts. It helps you understand what level of documentation is actually required for different types of cash payments and creates a compliant system using whatever records you do have. I was surprised how simple the solution was for my situation.
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Haley Bennett
I tried taxr.ai after posting my skeptical comment and wow - it actually works! I honestly didn't think anything could help with my mess of handwritten cash payment notes, but their system made it super straightforward. The analysis showed me exactly how to categorize my different types of labor expenses on my Schedule C, and gave me a simple template for documenting future cash payments. Turns out I was overthinking it - I don't need elaborate systems, just consistent basic documentation. It also identified that two of my "one-time" workers actually worked enough separate jobs to need 1099s, which I had totally missed on my own. Definitely using this for next year's taxes. Saved me from paying my accountant for extra hours just to sort through my cash payment situation.
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Douglas Foster
If you're also struggling to get clarity directly from the IRS on handling cash labor payments (like I was), try https://claimyr.com - they got me connected to an actual IRS agent in under 45 minutes when I'd been trying for DAYS on my own. I needed to understand exactly what documentation was required for cash labor payments under $600 since my landscaping business uses day laborers too. The wait times were insane every time I called the IRS directly. With Claimyr, I got through quickly and the agent walked me through exactly what records I needed to keep to satisfy an audit. You can see how it works here: https://youtu.be/_kiP6q8DX5c Totally worth it for the peace of mind knowing I'm handling everything correctly.
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Nina Chan
•How does this even work? I thought it was impossible to get through to IRS agents these days? Last time I tried I was on hold for 2 hours and then got disconnected.
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Ruby Knight
•Yeah right, there's no way to skip the IRS phone queue. Sounds like some kind of scam to me. The IRS literally tells everyone they're understaffed.
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Douglas Foster
•It works by using advanced technology to navigate the IRS phone system and wait in the queue for you. When an agent becomes available, they call you and connect you directly. I know it sounds too good to be true - I was skeptical too! The service isn't "skipping" the queue - they're essentially waiting in it for you so you don't have to waste hours listening to hold music. And yes, the IRS is definitely understaffed, which is exactly why this service is so valuable. When I used it, I was connected with an agent in about 37 minutes, when my previous attempts had all ended in either disconnection or 2+ hour waits. The agent I spoke with was incredibly helpful and gave me specific documentation guidelines for my cash labor situation.
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Ruby Knight
I need to apologize and correct myself. After posting my skeptical comment, I decided to try Claimyr myself since I had some questions about reporting my lawn care business income. I'm honestly shocked - it actually worked exactly as described. I had been trying to reach the IRS for over a week with no success. Using this service, I got a call back in about 40 minutes and was connected to an IRS representative who answered all my questions about documenting cash payments to workers. The agent confirmed that even though I don't need 1099s for workers paid under $600, I DO need to keep records of all payments for my business expense deductions. They recommended a simple payment log with dates, amounts, and work performed. This clarity was exactly what I needed before filing my taxes.
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Diego Castillo
Just wanted to add that even if you don't issue 1099s, those workers are still legally required to report that income on their taxes. You probably don't care about that part, but it helps explain why the IRS wants you to document expenses - they're trying to track income from all sides. I run a small construction company and what I do is keep a simple spreadsheet with each worker's name (or description if I don't know their name), date, job site, hours, and amount paid. I take a photo of each cash payment being handed over too. My accountant says this is plenty for documenting business expenses.
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Yara Campbell
•Is there a minimum threshold for these expenses? Like if I paid someone $40 for a quick 2-hour job helping load plants, do I still need to document that level of detail?
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Diego Castillo
•There's no minimum threshold for documenting business expenses. Even small payments like $40 should be recorded with the same level of detail. While it might seem excessive for small amounts, consistent documentation across all expenses is what protects you during an audit. For quick small jobs like your $40 example, I still record all the same information. It only takes a few seconds to jot down or enter in my phone: date, brief description of work, amount paid. The consistency is what matters - if you document everything the same way, it shows you're operating systematically rather than selectively tracking expenses.
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Logan Stewart
Remember that these aren't employees from a tax perspective - they're independent contractors. That means you don't withhold taxes, but absolutely document the payments even if under $600. I had a minor audit two years ago for my small business where I had to prove some cash labor payments, and my simple log with dates, names (when known), and services provided was sufficient. They didn't question anything because I had a consistent system.
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Mikayla Brown
•I thought workers only counted as independent contractors if they meet certain criteria? Like controlling their own hours, using their own equipment, etc. Wouldn't day laborers technically be employees since the business owner directs their work?
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Ellie Lopez
•You're absolutely right to bring up the worker classification issue. The IRS uses several factors to determine if someone is an employee vs independent contractor, including behavioral control, financial control, and relationship type. For day laborers picked up from hardware store parking lots, it's actually a gray area. They typically use their own basic tools, work for multiple people, and have some control over when they're available. But if you're directing exactly how they do the work, providing all equipment, and setting their schedule, they might be considered employees. The safest approach is to treat them as independent contractors but be prepared to justify that classification. Keep records showing they work for others, use their own tools when possible, and have some autonomy in how they complete tasks. If you're concerned about misclassification, consider having them sign simple independent contractor agreements.
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Sara Unger
One thing I haven't seen mentioned here is the importance of keeping cash withdrawal records from your personal account if that's how you're paying these workers. Since you mentioned paying from your personal account rather than business, make sure you can tie those cash withdrawals to the labor payments in your records. I learned this the hard way when my accountant asked me to prove where the cash came from for my business expenses. Now I keep ATM receipts or bank statements showing cash withdrawals that correspond to my labor payment dates. It creates a cleaner audit trail showing the money flow from your account to business expenses. Also, consider opening a separate business checking account if you haven't already. It makes everything so much cleaner for tax purposes and separates personal vs business transactions. You can still pay cash, just withdraw it from the business account instead.
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Benjamin Carter
•This is really helpful advice about the cash withdrawal documentation! I never thought about needing to prove where the cash came from. I've been pulling cash from different ATMs whenever I need it for day laborers, but now I realize I should be more systematic about it. Do you think it's okay to withdraw larger amounts less frequently (like $500 once a week) rather than smaller amounts each time I need to pay workers? I'm wondering if that would make the documentation cleaner or if it matters as long as I can show the withdrawals match up with my payment records over time. Also, thanks for the business account suggestion - I keep meaning to set one up but never got around to it. Sounds like it's worth the effort for situations like this.
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