Many times, people ask, “Should I make it out to cash?”
It seems like they are doing you a favor like this check won’t be tracked, and therefore you won’t have to pay taxes on the money.
Is this really true?
Understanding the legal implications and the business implications of a cashed check can be very important.
Are Cashed Checks Traceable?
Cashed checks are traceable.
If you are paid with a check for a job and you cash that check, the bank will have a record of it.
The person who wrote you the check will not be able to tell if you deposited or cashed your check.
When you cash a check greater than $2500, then the bank (depending on which one you use) is required to have you show your ID, and it will be a recorded transaction.
Anything over $10,000 will be automatically sent to the IRS so they will have a record of this information.
There is not much a bank does at this point in our society that is not traceable.
If you are trying to cash a check because you need cash, then you have nothing to worry about.
The problem is some people are trying to cash checks for the wrong reasons, and this why there are specific rules and regulations in place.
What About Check Cashing Institutions?
Check cashing businesses are different than banks, and they don’t have the same rules they must adhere to when it comes to the IRS.
There is, however, a major downside to using a check-cashing business.
Normally, the fees will be anywhere from two to five percent for you to cash a check.
This is a significant amount of money when you do this for many years.
The other problem many people don’t realize is, when you are able to make a big purchase, like houses, cars, etc. but you show no income, it throws up some red flags.
These red flags are eventually what could cause an audit to happen, and you may end up with some very ugly tax bills.
It is best to claim the money you make and write off the appropriate expenses that the IRS allows.
Making purchases towards your business are considered to be write-offs, and they are perfectly legal.
Talk to a great accountant to make sure you are properly handling the finances for your business.
Most business owners put too much time and money into their business to have it taken down by a few cashed checks.
It’s not worth the risk.
Can Someone Steal My Check and Cash It?
People tend to think of checks like cash and treat them as if they could potentially get stolen.
Of course, a check could get stolen, and the wrong individual could cash it, but it is usually quite unlikely.
Most of the time, some kind of identification is needed for you to cash a check.
When your ID does not match the information on the check, the bank or check cashing institution will get a little leery about this.
In the end, it will come back to them, and they will have to reimburse for the stolen check.
This is not a risk most institutions are willing to take.
If you think a check of yours has been stolen, it is best to contact the person who wrote the check and have them cancel it.
When they cancel the check, if the person who stole it were to go to a bank, the check would not be valid, and it would not allow them to cash or deposit the check.
How Can I Tell if a Check Is Good?
When you deposit a bad check into your account, many times, there are going to be fees and implications for your account.
This is very frustrating and will cause you quite a bit of trouble.
If you want to find out if a check is good prior to depositing it, there are a few steps you can take.
For starters, you will need to contact the institution where the check is coming from.
Do not try and do this with your current bank, as they won’t have the access to the information that they need to complete this request.
Once you find the bank’s information on the check, give them a call, and explain what you are trying to do.
Tell the cashier or the customer service representative that you are trying to verify a check.
Chances are they will ask you for the routing numbers and the account number on the check.
Most of the time, this will be located near the bottom edge of the check near the left side.
You will need to also let the customer service representative know the amount of the check.
When you give them the amount and this information, they should be able to see if the check is valid.
Sometimes they will be able to see pending deposits or withdrawals as well.
This will help them to determine if your check is going to be valid or not.
Some banks have very strict policies about this type of thing, and they may not be able to help you.
However, most financial institutions will understand what you are trying to do and give you the help you need before you end up with fees and a mess on your end.
Can Banks Ask Where Money Came From?
At times, banks can and will ask you where the money came from.
When you make large deposits of cash (especially those over $10,000), the bank will ask where the money came from.
There are lots of issues with fraud and money laundering, and large cash deposits are a red flag for financial institutions.
Sometimes the cash could be a bonus from work or a gift from your parents.
Regardless of what the cash is, make sure you are honest and open with the bank employee as this information will be recorded.
When you file your taxes at the end of the year, make sure you report any of this information.
Your employer should be reporting things like cash bonuses, but if they are not, it is still your responsibility to make sure you are recording it properly and paying taxes.
People look at taxes negatively, which is understandable, but the more taxes you pay, the more money you are making!
If you want more write-offs on your tax return, invest in your business, and talk to an accountant about ways you can manage your tax bill.
Hopefully, we have cleared up all of your concerns and questions about cashed checks being traceable.
In today’s world, almost everything is traceable, and there is no reason to try and avoid reporting money you have made.
Pay your taxes, report your income, and work with an honest and reliable accountant.
Through the years, you will come out on top when you follow these systems as opposed to trying to cut corners and hide money from the IRS.
The best mindset to have is that everything can and will be traced at some point.