When you deposit over $10,000 in cash into your bank account, the bank is required to notify the government of the transaction.
Banks and financial institutions adhere to the rules outlined by the Bank Secrecy Act, sometimes referred to as the Currency and Foreign Transactions Reporting Act, when handling sizable cash transactions. This legislation aims to hinder money laundering activities, where criminals attempt to conceal the illicit origins of their funds through cash deposits.
Are Banks Required to Report Large Deposits?
If a cash deposit exceeding $10,000 is made, the bank or financial institution is obligated to file a form indicating this. The form is also required for any transaction or series of related transactions totaling $10,000 or more. Similarly, any group of related cash deposits of $2,500 or more must be reported.
A series of related transactions can be defined in two ways:
- Two or more related payments made within 24 hours
- Two or more related transactions conducted within 12 months
Additionally, if a negotiable instrument such as a bank draft or cashier’s check is purchased with more than $10,000 in cash, the issuing financial institution must report this as well. This reporting requirement pertains to both American dollars and foreign currency valued above $10,000.
Am I Required to Report Large Cash Transactions as a Business Owner?
It's not only banks that are responsible for reporting cash transactions exceeding $10,000. If a cash payment of $10,000 or more is received by your trade or business, you must also file Form 8300.
About Tax Form 8300
If your business receives a cash payment exceeding $10,000, you're required to report the transaction by using Form 8300, which provides important information to the Internal Revenue Service and the Financial Crimes Enforcement Network (FinCEN). The form helps these agencies in their fight against money laundering, which is often used to facilitate illegal activities like drug dealing and terrorist financing.
The IRS has outlined some key considerations to keep in mind when filing Form 8300. Businesses that receive more than $10,000 in cash through either a single transaction or a series of related transactions must file the IRS/FinCEN Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.
Transactions that require Form 8300 include:
- Sale of goods or services
- Making or repaying a loan
- Sale of intangible property
- Sale of real property
- Custodial trust contributions
- Rental of real or personal property
- Exchange of cash for other cash
- Pre-existing debt payments
- Escrow arrangement contributions
- Reimbursem*nt of expenses
- Negotiable instrument purchases
Cash received as a lump sum or in installments can qualify for reporting if the total amount received within one year of the initial payment exceeds $10,000. Additionally, previously unreported payments that cause the total cash received within a 12-month period to exceed $10,000 must also be reported. If the cash deposits are made to a joint account, the identification of each depositor is required.
Cash includes American or foreign currency, as well as cashier’s checks, bank drafts, traveler’s checks, and money orders. If a customer pays with a cashier’s check, bank draft, traveler’s check, or money order exceeding $10,000, the issuing financial institution will report the transaction. However, if a customer pays with one of these instruments and it is less than $10,000, you may still need to file Form 8300 in certain cases, such as for the sale of a collectible or travel and entertainment, where the related sales price of all transactions exceeds $10,000. The reference guide for Form 8300 provides more information on what qualifies as cash.
The form must be filed within 15 days after receiving the cash, and it can be submitted electronically or by mail to the IRS. A copy of the form is also sent to the Financial Crimes Enforcement Network (FinCEN). Failure to report these transactions can result in severe penalties for businesses.
How Much Money Can You Deposit Before It Is Reported to the IRS?
If you deposit less than $10,000 in cash within a specific timeframe, you may not be required to report it. However, if a customer makes multiple smaller cash payments in a 12-month period and the total paid exceeds $10,000, the 15-day countdown for reporting to the IRS begins.
The IRS may also investigate suspected "structured" deposits made to evade the $10,000-or-above reporting requirements. For instance, if someone consistently deposits $9,800 for two weeks to evade the IRS, the bank will file a Suspicious Activity Report with the Financial Crimes Enforcement Network (FinCEN). The bank may also voluntarily file reports for suspicious deposits that are less than $10,000.
As a small business owner, if you anticipate receiving enough funds to exceed $10,000 in deposits in the near future, it's a good idea to consult with your bank or credit union. They can advise you on the best way to comply with the rules outlined by the Bank Secrecy Act.
This post is for informational uses only and is not legal, business, or tax advice. Please consult with an attorney, business advisor, or accountant with concepts and ideas referenced in this post. Balance Pro assumes no liability for actions taken in reliance upon the information contained in this article.
