Depositing a big amount of cash that is $10,000 or more means your bank or credit union will report it to the federal government. The $10,000 threshold was created as part of the Bank Secrecy Act, passed by Congress in 1970, and adjusted with the Patriot Act in 2002.
The law is an effort to curb money laundering and other illegal activities. The threshold also includes withdrawals of more than $10,000.
"This regulation derived from concerns of monetary instruments transported or transmitted in or out of the United States from possible drug trade transactions, including the financing of terrorism," says Bob Castaneda, program director for Walden University's accounting and finance programs.
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When Does a Bank Have to Report Your Deposit?
Banks report individuals who deposit $10,000 or more in cash. The IRS typically shares suspicious deposit or withdrawal activity with local and state authorities, Castaneda says.
The federal law extends to businesses that receive funds to purchase more expensive items, such as cars, homes or other big amenities. These companies are also required to report deposits.
If, for some reason, you want to avoid having your big cash deposit reported to the government, don't think that you can get around the requirement by breaking up your money into smaller deposits. This is known as structuring, and the government is on the lookout for it, too.
If an individual makes cash deposits over several days that are less than but still add up to at least $10,000, that person will be reported, Castaneda says. This even applies if you spread your deposits across more than one bank.
"Suspicious activity in excess of $5,000 detected by the bank or an institution is also required to be reported," Castaneda says.
The IRS regulation, in part, reads this way: "Structuring is illegal regardless of whether the funds are derived from legal or illegal activity. The law specifically prohibits conducting a currency transaction with a financial institution in a way to circumvent the currency transaction reporting requirements."
Does This Rule Cover Only Cash?
While the deposit rule does not cover most checks, it does include reporting other forms of money, such as foreign currency, cashier's checks or money orders. The law also includes investment securities, Castaneda says.
However, for individual cashier's checks, money orders or traveler's checks that exceed $10,000, the institution that issues the check in exchange for currency is required to report the transaction to the government, so the bank where the check is being deposited doesn't need to.
So, for example, if you're depositing an $11,000 cashier's check, your bank won't be reporting your deposit. The bank that issued the $11,000 cashier's check already has reported it to the government.
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What if You Run a Small Business That Deals in Cash?
Small business owners who frequently receive payment for products or services in cash, such as food trucks, hair stylists and restaurants, must also report any cash transactions exceeding $10,000.
The law applies to all businesses and must be reported on IRS Form 8300. The identity of both parties and the nature of the transaction must be disclosed. Individuals who fail to file can be prosecuted.
If a client pays $1,000 each month in cash, the business owner will likely file a Form 8300 in November, after the amount has reached the $10,000 cash threshold, says Morris Armstrong, a Cheshire, Connecticut-based enrolled agent for representing taxpayers before the IRS.
"If a person dropped off $10,000 as a retainer for me to handle a tax issue, I would file a Form 8300 within 15 days," he says.
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Should You Worry About Your Deposits Being Reported to the IRS?
The fact that your bank will report any cash deposits or withdrawals in excess of $10,000 isn't necessarily cause for alarm.
The intent is to identify and monitor where the money ends up, Castaneda says.
"It should not be construed as illegal activity," he says. "It also helps authorities to determine if one's account has been compromised and if a series of transactions are unusual or fraudulent."
And though the bank may report the deposit of cash you received for, say, selling your car, you don't need to fill out a Form 8300 to record that sale because you aren't in the car sales business.