Businesses are responsible for recording all their income, even if it’s a cash transaction, and reporting earnings to the IRS, as taxes are required to be paid on all income. If you accept cash, you’re required to have a method of recording these transactions, such as a voucher or cash receipt pad. Many office supply stores offer generic cash receipt pads that are perfectly acceptable records of transactions.

It’s a good idea to be organized no matter what your business is, so keeping records of your cash payments is a step in the right direction. You’ll need to document more expenses if you want to claim expense deductions and effectively lower your businesses net income as it relates to taxes.

If you’ve made cash payments for things related to your business, you’ll be able to deduct the expense on your tax return, but you’ll be required to show documentation of the expense. Using a petty cash system is one way to document small cash payments.

Cash businesses often run into trouble when reporting income to the IRS. If a business reports a loss many years in a row may be subject to scrutiny by the IRS, and likely to be audited. The IRS refers to industry averages and -standards to find businesses whose income is below the average, focusing on underreported income. Proving that you are negative is more difficult than it sounds, as its harder to document that you didn’t accept cash.