Is it legal to pay a contractor cash?
<p>I know that some businesses accept cash in exchange for services and never declare that income (tax evasion). I understand that it is illegal for businesses to do so. But what about the other end of the stick?</p>

<p>What happens if a person proposes a cash-for-services deal to a business to avoid having to pay taxes on the service? What if the person actually proceeds with the transaction?</p>

<p>Does the client have any legal liability? Or is the liability only present on the business end?</p>

<p>There is nothing wrong with paying in cash; there is something wrong about hiding a transaction that relates to a taxable event. Cash makes that easier.</p>

<p>Pretty much like buying a knife does not prove the buyer's intent to cut someone's throat, paying/accepting cash does not prove tax evasion.</p>

<p>A contractor person is a one-man business. Tax-wise, there is no difference whether he sells services to businesses or private individuals. Both can pay him cash and leave it up to him to worry (or not) about his taxes.</p>

<h2>It's naughty on both ends</h2>

<p>Paying in cash is fine.  However, the client has to issue a W-2 or 1099 for the money they paid to the contractor.  </p>

<p>Which will bring to a screeching halt any hope the contractor had to fail to report the income. </p>

<p>So the contractor goes to the client and says "please do not issue me a 1099." The client says "that's a big ask. Why should I do that?" Contractor says "so I can evade taxes".  Client says "ok". </p>

<p>Now you have <strong>conspiracy to tax evasion</strong>.  In Federal law, conspiracy to <em>anything</em> is a felony.</p>

canada tax-law fraud