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Paying Cash, Avoiding Tax, An Ethical Dilemma?

One of the best ways to negotiate a discount on a job or sale is to offer to pay for it in cash. There are a multitude of reasons why this is the case but if you ever want to knock a few dollars off, consider offering to pay in cash and see what the business says. This won’t work if you’re talking to a large national business and a salaried employee with very little latitude but it will probably work for everyone else.

Two of the main reasons why this works are totally benign but the third reason, in red below, is the biggest reason why this works and it’s along the same lines of a post I wrote in the past about paying tips in cash.

Credit cards have fees
When you pay with a credit card, the credit card company (and all the third party middlemen) extract a fee that amount to a few percent. When you offer to pay with cash, the business doesn’t have to pay these fees and so you can usually get a small deal out of it.

Financing has risk, cash does not
If you finance through the business (actually a bank or lender that has a relationship with the business), there’s an inherent risk involved because you might default on the loan. You can’t default on cash.

They can do potentially do the job or sale off the books
This is probably the biggest financial reason why a business would might give you a little discount, though they won’t say it, if you pay with cash – there’s no paper trail and they can avoid paying taxes on the income. If you view tax as an expense, such as building supplies, if you could suddenly do a job without paying 30%, you’d probably offer a discount for the job too. Unfortunately, this expense is nationally unavoidable and it’s illegal.

Now, back when I wrote about paying tips in cash [3], many readers left comments chastising me for recommending you pay tips in cash because you would be helping the wait staff, if they chose to, avoid taxes by underreporting their tips and thus avoiding tax. Now I pose this question to you (especially if you said paying tips in cash was ethically wrong), have you ever negotiated a deal using cash and do you see this as ethically wrong? Remember, you’re not doing anything illegal, the business owner may not skirt out on taxes, but by virtue of paying in cash it is possible that you could be enabling an illegal act (similar to the paying tips by cash, except this time you benefit too). I’m very curious to see what everyone says about this scenario!