• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

Holding money for others: Legal? Tax liabilities?

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

CurlySue

Junior Member
My state: Washington State

Hello all,

I’m just wondering if anyone knows:

1) If it’s legal to hold another person's money in your bank account.

2) If you did that, would you have to pay taxes on that money, even though the money wouldn’t belong to you and you wouldn’t have any moral right to spend it AND the rightful owner reports it to the IRS. (Because if you both report it, then two people would be paying taxes on the same income, no?)

3) If you don’t have to report it, how could you prove the money you hold doesn’t belong to you? Just get the owner to write a letter?

4) If you do have to report it, how should it be reported? As miscellaneous income? As self-employment income that you have to pay self-employment tax on (even when you don’t have a company)?

I’m thinking, for example, a friend who doesn’t have a bank account holds a garage sale, makes a few $100 and, rather than stashing it under the mattress, she asks you to hold it.

Any advice appreciated! Thank you in advance.

C.S.
 


LdiJ

Senior Member
CurlySue said:
My state: Washington State

Hello all,

I’m just wondering if anyone knows:

1) If it’s legal to hold another person's money in your bank account.
If the two of you agree to do that its not illegal.

2) If you did that, would you have to pay taxes on that money, even though the money wouldn’t belong to you and you wouldn’t have any moral right to spend it AND the rightful owner reports it to the IRS. (Because if you both report it, then two people would be paying taxes on the same income, no?)
Unless the amounts being deposited are more than 10k, (at a time) the IRS won't even know the money exists, and won't ask for an explanation of where it came from. The IRS also doesn't expect you to report it. However, if there is any chance that any kind of money laundering is going on then some other agency may ask questions.

3) If you don’t have to report it, how could you prove the money you hold doesn’t belong to you? Just get the owner to write a letter?
Unless the amounts deposited are more than 10k (at a time)...no one will ask you to prove where it came from.

4) If you do have to report it, how should it be reported? As miscellaneous income? As self-employment income that you have to pay self-employment tax on (even when you don’t have a company)?
You don't have to report it.

I’m thinking, for example, a friend who doesn’t have a bank account holds a garage sale, makes a few $100 and, rather than stashing it under the mattress, she asks you to hold it.

Any advice appreciated! Thank you in advance.

C.S.
If that is all that is going on....then there is nothing to worry about.
 

abezon

Senior Member
Be sure to document how much $$ is the friend's. If you ever get audited, the IRS will want an explanation for every deposit. The easiest thing to do would be to start a new account with just her money. Then there's no question of comingling funds or tracing the money source. You could even make her a signatory on the account. Just be sure it's only on the 1 account. Maybe open it at another bank?
 

CurlySue

Junior Member
Thank you both for your input. I appreciate it! I was just wary of doing anything “suspicious” and then being accused of tax fraud or, as Abezon mentioned, have problems with an audit.

Thank you again,
C.S.
 

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential
data-ad-format="auto">
Top