How does the IRS catch your cash-only side business?
Updated: Oct 25
If a client pays you more than $600, they are supposed to file a 1099-MISC with the IRS. Now maybe that 1099-MISC never made it to you because you moved or the envelope got lost.
If you don't report what the client reports to the IRS, you will get an IRS letter.
If you're parking cash in a interest-earning bank account, the bank should file a 1099-INT with the IRS. The IRS may wonder why you're earning more in interest in that account than someone should be earning with your reported income.
The IRS/US Treasury tracked Al Capone's lavish expenses by checking the records at local jewelry stores, hotels, car dealerships, and department stores. Then the Treasury raided a suspected Capone gambling hall and found ledgers with references to "Al". The handwriting on the ledgers matched bank deposit slips of a Capone associate, who ultimately ratted Capone out.