My mother-in law is going to lend me money to start my own business. She thinks that if she gives me more than $10,000 at a time which I will deposit into my account, I will have to report it to the IRS and pay taxes on it. Is this true, and if so, what is the limit on deposits?
Last things first, there is no limit on deposits. Feel free to deposit what you need to deposit.
Now for the more detailed part of your question. Banks have to follow rules just like you and I. In this case the law is the Bank Secrecy Act. This law is meant to enable law enforcement to follow the money trail by creating a paper trail. Originally it was more directed toward drug dealers, but since 9-11 there is a huge emphasis on this for terrorist financing as well, and the fact that these criminal acts are often related doesn't diminish the intent either.
Does that mean that the average customer has to worry about the police breaking down your door because you made a large cash deposit? Absolutely not.
Banks have to report cash transactions that exceed $10,000. They have no choice, and trying to avoid having this reported is not a good idea either. You should complete your transactions and let the bank do the paperwork.
Better yet, don't have your mother-in-law give you cash. Let her pay you with checks or just transfer the funds from her account to yours. Let her invest in your business and talk with a tax consultant so that you and she can both enjoy the fruits of your labor without hiding from the IRS and any other entity. You'll find that business will be better, accounting will be more accurate and both you and your mother-in-law won't have to worry about hiding your transactions. When you start doing that, you should worry and you won't help yourself later when you try to borrow money for expansion, to pay off your debt, etc.
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