Why Making Money Under the Table is Always a Bad Idea

Occasionally, when interviewing a client for bankruptcy, I am told, "Well, I do work for this guy, but it is under the table/off the books." The fraud consequences of not declaring this income on your tax return aside, this strategy is always a bad idea. What most people do not realize is that the downside to doing this exceeds the short term benefit of the tax savings. Three good reasons come to mind.

It Can Foul Up Your Social Security

First, what if you need Social Security benefits for retirement or a disability? Income "on the books" is reported to the Social Security Administration, not only in the form of the FICA taxes withheld, but also your work history. If you work for any significant period of time "off the books," then later need to apply for retirement or disability benefits, you will be paid less than if you had reported the income because your earnings record will be deflated.

It Can Reduce Worker's Compensation Benefits

Second, what if you are injured on the job? I consult with many clients in the construction industry. What I tell them is that if you are not on the company books as an employee, there might be a coverage issue for New Jersey worker's compensation insurance. That is even if the employer has compensation coverage! That may be the reason you are off the books in the first place! Now you are struggling to get treatment and disability income that you might have easily received if you were "on the books."

It can also be difficult to calculate temporary or permanent disability benefits accurately without "off the books" income information. One example is under-reported tips by restaurant staff. They may well end up getting less than they might while out on disability, because they can't substantiate their true income.

Another good example of this problem is also one that is in the news. National Public Radio reported recently that the fishing industry in the Gulf of Mexico is going to have big problems regarding the BP oil spill (other than the obvious). The article begins by observing:

"Cash is king in the Gulf fishing industry. And many fishermen and residents say a large, if unquantifiable, amount of the Gulf Coast's economy operates with cash. It's a segment of the economy that, for generations, has been kept in the shadows of the Internal Revenue Service."

Unfortunately, the spill has devastated their business, and they want to make a claim from the $20 billion compensation fund BP set up. But how do they substantiate that claim? How do they show that this is really their loss without the business records to back it up?

It Can Hinder You from Filing Bankruptcy

Third, what if you have to file bankruptcy? I have had clients that have not been able to do so because they or their spouses had under the table income that would come to light through the bankruptcy petition, either by disclosed income in the petition that did not line up with tax returns or because they simply could not document it for some of the income analysis required under the code.

The bottom line: there is such a thing as being too clever for your own good. Bite the bullet, work on the books, and pay the taxes. You will be better off in the long run.

Looking for more information about bankruptcy? Get the answers to the most frequently asked questions by downloading my free book, Top Questions People Ask About Filing Bankruptcy in New Jersey. It will give you the answers you need all in one place. Then contact my office for an appointment for a free consultation to discuss your case.

The Law Office of Steven J. Richardson serves New Jersey, including: Gloucester, Camden, Burlington, Salem, Cumberland and Atlantic Counties and surrounding New Jersey communities, including Woodbury, Colonial Manor, North Woodbury, Woodbury Heights, Deptford, Thorofare, Gloucester City, Washington Township, Blackwood, Brooklawn, Westville and Pitman.

Richardson Law Offices
40 Newton Avenue
Woodbury, NJ 08096
Phone: (856) 686-9910
Fax: (856) 686-9911