Laundry Night |
And, let's further presume you are the type of person who can rationalize their actions, whatever they are. Let's face it, most people justify their actions by rationalizing them. Some do it to a small degree like not telling a minor acquaintance that his shirt really doesn't go with the pants he is wearing. You don't want to hurt his feelings. Not your fault he isn't clothes conscious. And, there are others on the far end of the rationalizing stick, such as, "I shot the guy because he dissed me." Only you know where you are on this measuring stick.
Anyway, you've got this business where you have to pay state sales tax on services sold and federal income tax on any profit made. Of course, nobody likes to pay taxes. That is money which could go into your own pocket. If only there was a way.
Well, depending upon your situation, there are two ways with this exact same business to approach the tax thing. For instance, if your enterprise is making lots of money and you want to protect some of that profit from the taxman, what some business people do is a thing called skimming. A certain amount of the cash never makes it to the ledger sheet and therefore becomes tax free cash. Yes, it is illegal to do so. The taxman always wants his cut.
Go to a drinking establishment on different nights when the owner is tending bar and sit up to the counter where you have a clear view of the cash register. When people pay for a drink in cash, does it get rung up on the cash register, or does the cash go into his pocket or into a box under the counter? Remember, just because the cash register drawer opens doesn't mean the sale was rung up.
Here's another version. Several years ago, I met this body shop owner who liked to party in Las Vegas for a weekend. Here's how he financed it off the books. Let's say a customer came in with about $900 of body damage to his vehicle, but his insurance deductible was $1,000. The body shop owner would size up the customer and make a one-time offer: $900 plus tax if paid with plastic or a check, but there was a $100 discount to a flat fee of $800 if paid in cash. The car is fixed, the cash is paid and the body shop owner put that money in his vacation fund. Some Vegas casino then makes out like a one-armed bandit on an upcoming weekend, while Uncle Sam and his state cousin get slighted.
Now, to work it the other way with this same legitimate business, let's assume you are some type of organized crime with lots of money from an illicit enterprise, like drugs or human trafficking or......pick your crime. But, in our case, since we are law abiding citizens not involved with organized crime, let's assume we merely found a briefcase filled with a hundred thousand dollars. How did all this money come to in a briefcase you ask? Well, it's buy money for a drug deal and the meth-head driving down the road got paranoid. He thought the cops were following him, so he threw the briefcase out the window, took evasive action, got lost and forgot where he was when he threw it. And, we just happened to find the briefcase with all this money? Uh, yeah, we were out jogging along that road and Merry Christmas. Naturally, we don't want to call attention to ourselves by declaring our good fortune. Like the Hells Angels say, "Three can keep a secret if two are dead." And, think about it, even if our conscience says to turn the money in, that meth-head with a gun might see circumstances in a different light. He might believe that we then owe him that money of his that we gave away to the cops. Meth-heads think different. So, we take our own evasive action.
In either situation, organized crime or fairly law abiding citizen, a person wants to make this extra money appear to be legitimate. How do you do this? You launder the cash. Every night, you take some of that cash and put it in with the night's cash deposit. Okay, so you have to create some extra sales tickets to explain the extra money, but you've got plenty of blank receipts laying around. And, yeah, you have to pay sales tax on something your legitimate business didn't sell in the first place, plus pay the income tax on that extra phantom profit, but if you're in the 20% tax bracket, you're still making 80 cents on the dollar on money you didn't have to work for. Plus, now that money appears to be legal. You don't have to explain to others why you have extra money. Nope, you are a successful businessman running a successful business. Of course, laundering money is illegal, even though this time the taxmen are getting their cut.
I was sitting in a mob bar once in Kansas City, up to the counter where I could see the cash register on one wall and the cigarette vending machine on another wall. I gave the waitress some money and asked her to get me a pack of cigarettes. She took her time, stopping for drink orders at other tables, took the orders to the bartender, went to the back room, came back to the bartender, delivered the drinks and then gave me my cigarettes. She never once went to the vending machine. The pack of cigarettes she got from the back room didn't have a tax stamp on them. Evidently, they came from a high-jacked semi on the East Coast or else they got sold out the back door of the factory. The mob bar could have been skimming the profits on the untaxed cigarettes, or they could have been using them to pad their inventory to explain expanded profits.
Just know, that whichever way the business is handling its money, the taxman has parameters for those types of service businesses and if the business shows too much profit according to the taxman's charts, or too little profit, the taxman will then dig deeper into accounts payable, accounts receivable, inventories and connecting receipts. It doesn't pay to get too greedy either way.
So, there you have it. It's best not to do anything you have to rationalize about when it comes to large amounts of extra money.
Wait a minute !!!
You're still thinking about how YOU would handle that extra hundred thousand dollars, aren't you?
As Elmer Fudd would say, "Be berry, berry careful."