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If you are not being audited, you are paying too much in taxes. Of course if you are not paying taxes at all, I hope they audit you right into prison.
^^^ agreed that the automatic 'cash transaction' reporting requirements imposed on banks, financial institutions, retail merchants etc. is probably the #1 way in which dancers attempting to 'fly below the radar' wind up creating a 'blip' on gov't 'radar screens'Quote:
Throwing large amounts of cash around will attract the attention of all sorts of agencies, not just The Treasury.
- any cash transaction over $10,000 federal ($3000 in some states) will trigger a report of that transaction to the DHS/IRS and/or state tax agency
- any money order transaction over $1,000 (total at a single location in a single day) will trigger a similar report
- the registration of any 'title' with a government agency i.e. car, boat, house, motorcycle will trigger a similar report
I would also add that while the IRS hasn't really shown its hand yet in this specific area, the US congress did specifically approve a new item in the IRS budget to create a new targeted tax enforcement unit for adult businesses. While this is obviously targeted at XXX video companies, adult websites etc. the IRS does consider 'strip clubs' to be adult businesses as well. Thus it's possible that the 'odds' of a random audit has now increased for exotic dancers ... something we won't really find out about until later in the year.
Your comment about a pretty young girl walking into a bank and depositing $100 worth of singles on a daily basis actually pertains to a different (but very real) reporting mechanism. Bank employees are required to note 'suspicious activity' on the part of bank customers, and report such 'suspicious activity' to the DHS/IRS and/or state agencies despite the fact that the total dollars involved may be under the automatic 'cash transaction' reporting thresholds. The criteria as to what really constitutes 'suspicious activity' by a bank customer is extremely loose ... but obviously involves 'patterns' of customer activity such as making frequent but small 'cash deposits'. It is speculated to also involve the monitoring of overall rate of 'cash deposits' over time, i.e. a single bank account which receives frequent small cash deposits but which winds up averaging out to a deposit rate of $1000+ per week is likely to draw attention. I am told that US banks have their own internal policies in regard to criteria used for generating 'suspicious activity' reports, so there really isn't any hard and fast way to identify what sort of activities might be considered 'suspicious'.
The bottom line here is that the days are long gone where undocumented 'cash' earnings could remain unreported and untaxed, but still spent freely !!! Thanks to the increasing use of IT and automatic reporting requirements, the IRS has an ever increasing ability to 'close the loop' between the amount of money that a person is officially reporting as income (and paying taxes on) versus the amount of money that the same person is actually spending. Today this now involves the tracking of average cost of living spending for every zip code area, automatic reporting of college tuition payments, 1099's for dividend and interest payouts etc. on top of the things already mentioned above. If the differential between officially reported income and automatically reported spending appears to be unrealistically high, the odds of an IRS audit increase astronomically !!!
To make matters worse in a related area, 'income verification' requirements are now increasing rapidly as well. Thanks to the subprime crisis i.e. 'liar loans', these days anybody that is applying for any form of credit - from mortgages to car loans to credit cards to other forms of credit like apartment / auto leases is increasingly expected to provide authoritative documentation of their income. In the absence of an employee paycheck this means showing past year tax returns. Thus anybody who is foolish enough to attempt to 'fly below the radar' and chooses to under-report their cash income is essentially relegating their unreported cash income to 'money that doesn't exist' status, and as a result relegating their creditworthiness to the level of a person whose only income is their officially reported income. And because of the automatic transaction reporting, there are now a very limited number of things which 'money that doesn't exist' can be spent on without the risk of raising red flags. These now essentially boil down to illegal substances, consumer goods costing less than $3,000, and 'services' - none of which helps build a stable financial future.
I would also add the following personal speculation ... With the economic slowdown, both the federal and state gov't budgets are running deeply in the red this year. This means that those gov'ts are going to be trying harder than ever to collect every dollar in tax revenue that is legally owed to them. Obviously, some prime targets for increased tax collection efforts are going to be companies and individuals who deal in 'cash' businesses. Of all of the 'cash' businesses out there, adult businesses are likely to be under the spotlight ... because gov'ts realize that they won't be subject to much public backlash ( example proposed strip club 'pole taxes' ) if adult businesses and workers wind up being 'victimized' by agressive tax collection efforts.
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First of all I would strongly dis-agree with the idea that if you are not being audited that you are paying to much in taxes, just as much as I would dis-agree with what very often passes for convential wisdom that if you claim everything under the sun as a deduction and don't get audited that means they were all legal.
No you just didn't get looked at. It is no diferrent than if you drove down the freeway at 2 AM going 115 and didn't get a ticket because no one was out there to give you one. The speed limit is not somehow magically 115, you just didn't get caugth, nothing more and nothing less.
As an I/C in any cash business that involves self generated records the biggest hurdle you have to clear with the IRS is that you have to get them to believe they are accurate.
Having the seperate account is all well and good but if for whatever reason the IRS comes to believe that you are witholding X amount of "spending money" cash per night or are paying for things that are not dancing related, fixing your boyfriends car, your moms electric bill, your "non deductible" 800CC boob job or that last trip to the Bahamas, what ever, then those records as far as they are concerned are not worth the paper that they are printed on.
The unfortunate reality is that the burden is on you have to prove they are accurate. They just have to say they don't believe them ans then come up with what they think you made and what they ae going to allow in the way of deductions.
This is an even more important point than PhoneHome expresses. Keep in mind that when Tim Geithner got caught under-reporting his taxable foreign income, there were official and authoritative records available from his foreign employer the IMF to show exactly how much money Tim actually earned thus allowing the calculation of exactly how much money Tim owed in back taxes and penalties. Dancers with undocumented 'cash' incomes do not have this luxury. Where undocumented 'cash' dancing income is concerned, the dancer is at the mercy of the IRS in regard to actually proving the correct amount of undocumented income she chose not to report, versus facing an estimated undocumented income figure generated by the IRS. I'll relate a specific example to try and emphasize this point.Quote:
As an I/C in any cash business that involves self generated records the biggest hurdle you have to clear with the IRS is that you have to get them to believe they are accurate.
A few years ago, a NY dancer was flagged for an IRS audit because she purchased a fairly expensive new car (which generated a title registration report to NY tax + IRS). A quick computer cross-check showed a huge gap between her reported income level and the amount of real income necessary to make the down payment / monthly payments on the new car, with average NY cost of living thrown in. During the IRS audit the girl's lack of 'credible' business records - in combination with cash flow rates through her bank accounts etc. - lead the IRS to take the position that the dancer's claims in regard to all of her finances are not 'credible' - i.e. there is no way she could afford a $1600 a month apartment lease payment plus a $1000 a month car payment plus general NY cost of living expenses plus checking account / credit card spending as shown in her account records based solely on the amount of income she had actually reported to the IRS.
As a result, the IRS then proceeds to try and 'estimate' the amount of money she has actually been earning while working at a fairly well known NY club. Between dancer quotes published in a NY Post news story about her club citing figures of $2,000 per night, plus some undercover observations at the club she worked at etc. the IRS comes up with an 'estimated' income level that is significantly above the ACTUAL amount of money she had really earned while working at this club. Purely for example purposes, this boils down to the dancer actually earning say $100k per year, under-reporting her income at $50k per year based on 1099 income only (and getting caught as a result), but the IRS 'estimating' an income level of $150k per year. As a result, the IRS sends this dancer a bill for back taxes on their estimated $150k per year level of earnings for the past three years, plus penalties and interest. The dancer attempts to dispute the $150k per year estimate, since this actually comprises an extra $50k * 3 = $150k * 40% or $60,000 worth of back income taxes on money that she never really earned. But because the dancer had deliberately under-reported her income, was caught as a result, and did not maintain any 'professional' accounting of her actual dancing earnings, she was caught between the proverbial rock and a hard place - i.e. having to pony up an additional $60,000 on top of the $ 100,000 or so worth of back taxes that she legitimately owed.
The bottom line here is that dancers who elect to under-report their income run a far greater risk than Tim Geithner ! If they are caught, not only will they have to pay the actual amount of back taxes owed as Geithner did, but in reality they are exposing themselves to additional tax penalties via the (very likely) possibility that IRS income 'estimates' will exceed their actual total earnings, and that the resulting IRS tax bill will exceed their actual tax bill had they correctly reported their income in the first place !!!
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My sis lost her noramla job last year due to the slow economy, so she had her schedule at the restaurant changed to full time employment (she works the bar). The IRS contacted her last year (at the end) for an audit (since she earned less income and was sending in less money). It had nothing to do with cash deposits made into her account, but they did help in creating a record. The IRS wanted (last) 3 months records from the bank.
Please help! I'm slightly worried -- I did the naive thing, I suppose, and put all my cash in my savings account. I didn't earn that much last year, but I also made cash from tutoring jobs, editing papers, etc, and deposited that. AND I got cash assistance from my parents and a sister whose daughter I babysat (but this was more as a gift than as 'payment' for services), and my boyfriend gave me a bit of cash to buy some books, etc for school. All this money went into the same savings account. My worry is that when I report my income, the money I got from other sources will be interpreted as income or something because I was depositing cash, and I'll get blasted for underreporting, which is scary. Advice?
Poor record keeping certainly gives the service an opportunity to estimate your income higher than what it is. It would help to know how much you are depositing. If we are talking about a few thousand dollars, it's probably not a big deal. If we are talking thousands or tens of thousands, then it is a big deal. Again, illustrating how important it is to keep business and personal separate.
XOXO
Z
I suspect they do not. It's illegal to fail to report and if you get caught, the service is not gentle about how they treat you.
You do not have to pay taxes on those monies. That is what is called a gift. If there is any tax due on gifts, it is due from the donor.Quote:
i am new to stripping and so am just starting to think about this issue, It seems like this is the case with many of the dancers at my club. i am a college student who gets money deposited into my bank account by my parents every month and obviously i have not been paying taxes on that,
Stripping is a business. It can be very lucrative if done right. I paid for college by stripping and had money left over when I graduated. Ask your classmates how many of them actually think they will have money in the bank and not loans when they graduate from college. I bet it won't be very many. And yes, I filed my quarterly estimates and paid my taxes. I also have a four year jump on everybody in my college class with Social Security and my retirement too.Quote:
but now i strip a few nights a week and thus far have not deposited any of this into the back or spent it in large amounts. I am, however, putting some money aside every night i work and have been thinking about opening a savings account at my bank to plunk it in after i get a few grand (and then put it in a grand at a time or so every couple months). is it really worth it to file taxes on this unless or until i start doing it more full time as my primary income?
-crimson
Just from the perspective of safety, you should deposit your stripping earnings every night before you go home. The closer to the club the better. Don't wait until you have "a few grand" to deposit. If you do, you'll never have "a few grand". The shopping mall is always out there. Put your money to work just as hard as you worked to get it.
You are under a legal obligation to report your income and pay taxes on it. Failure to report is a crime and there are also civil penalties. In a practical sense, the states and federal government are hurting for money. That means they are looking ever more to find non-reporters and under-reporters. Don't run the risk. Plus, it's a lot easier to sleep at night knowing you are square with your taxes.
HTH
Z
Thanks Zofia! I deposited about 5k in earnings, and about 5K in "allowance" - cash from parents and my man at the time. I hope they don't try to assume that the other chunk was unreported income :( Especially since I've spent a chunk of it on paying off debt. Any guess on the odds of that happening? (If it helps, I very honestly report all my earnings, including another 'desk' job I have where I got a W2 etc...)
So, for the coming year, do you think it's wise to open an account that's JUST for dancing income, so there's no grey area for the IRS to make generous assumptions in the future?
In this era of tight state, federal and even local budgets, no amount is too small. Still the chances seem slim. I would not lose any sleep over it.
Exactly right. The more you treat dancing like the business it is, the less trouble you will have with the service.Quote:
So, for the coming year, do you think it's wise to open an account that's JUST for dancing income, so there's no grey area for the IRS to make generous assumptions in the future?
XOXO
Z
In my understanding, you're also putting your family at risk, since it sounds like you're claiming as a dependent. If your family writes off their taxes using you as a dependent (they get tax cuts for this), then you are bound to your family by tax law. So if you get caught fucking up with your taxes, then your entire family could be held accountable.
In my opinion, it's worth claiming some money on your taxes and paying the (relatively) low fee. Peace of mind is worth a LOT. Then again, you could gamble and never get caught. It's up to you.
^ If you're serious about paying taxes, just talk to me next time we hang. Personally, I have a tax appointment on Monday to get 2008 over with. But tax time is here! So now's the time to be making this decision.
The situation you're describing is a gamble. You could get audited, but you might not. Statistically, the chances of you getting into trouble are low--especially since you're a college student (college students often have lots of legal money moving in and out of accounts, from parents, college accounts, etc.), which makes it harder to say "this is undeclared income". Also, the amount you're putting in your account puts you at a lower risk. However, in my opinion, the risks are still too high.
hoarding can cause its own problems given the wider range of justifications for asset forfeiture.
given that money people legitimately earned routinely gets seized at airports and routine traffic stops with less than no probable cause, i am pretty sure there will be more and more reasons to search and seize from hoarding individuals.
if you pay tax and stop being a dependent, you are somewhat better protected than trying to have the no-tax cake and eat it too.
your money is already being tracked if you shop anywhere that uses perpetual inventory tracking.
I was going to mention the "dependent" thing as well. if your family is still claiming you as a dependent which is often the norm in the case of full time students then that "extra" deduction changes there taxes.
With the amount you say you make 5K from dancing and however much from that "desk job" it is unlikely that you can meet the tests to be still called there "dependent" so not only can you get audited and owe back taxes, penalties and interest it will track back to your parents taxes, you being dis-allowed and a dependent which means they will owe back taxes, possible penalties and certainly interest.
I'm assuming were talking all US residents/citizens here.
Are there any student loans/grants/aid involved here? Your/there eligibility for these things are tied to total "family income" if it's just your parents income used in the figures maybe you qualify but add another 10 grand or so and the picture looks differrent, at the least "they" can want there money back, maybe imediatley at the worst they will call it fraud and take legal action.
Does your club do 1099's? do you know" If your club sends you a 1099 for however many grand next January they will CC one to the IRS you will have no choice about claiming the income and paying the taxes. Once this was unheard of but starting around 10-15 years ago, first with the "chain clubs" IE Deja Vu, Spearmint Rhino etc it has become more common. I don't know the % today might still be the minority but plenty of larger "run as a business" local clubs do it these days. There are probaly still plenty of "hole in the wall" "mom&pop" type places that don't do it is such an opertunity to right off 100's of thousands aybe millions in profits they would otherwise have to pay taxes on they are becoming more rare.
Keeping large sum of cashs around home is never a good idea, as said the call of the mall can be too strong and the next thing you know all you have to show for however many years of dancing is a closet full of designer clothes, shoes and purses that are out of style and god forbid don't fit anymore.
Ther are also other risks if you have 5 grand in cash in a shoe box in the back of your closet and your apartment burns down it is gone and you are SOL, a random burglarly that stumbles across it same thing. There are also plenty of cases of dancers and other "I make lots of cash" workers being targeted. You have a few of your stripper GF's over, there skeevy BF's eventually find out about you and where you live, figure you might have a lot of cash laying around and the next thing you know you are robbed. A pissed off ex-BF or booty call of your own, same result.
As I said to begin with the idea of having the seperate account is good especailly if you form an LLC and the acct. is in that name but the most importnat hurdle with that is that you have to get the IRS to believe that you are in fact depositing ALL your dancer earnings in it. If for whatever reason thay come to beleive that you are withholding X amount of cash every night, for what might seem to be perfectly logical "I need X amount of cash" reasons to have spending money, pay for gas and groceries or to pay other bills at places that have a local office and will allow you to pay in cash IE cell phone, cable, utilities etc. or are withdrawing money from it to pay for other non dancer related items then those "self generated" records won't be worth the paper they are printed on and the IRS will come up with income and deduction figures of there own.
In a perfect world, this is the better way to do it. However, since there is a requirement to send out 1099s to all these people with their SSN or TPIN, it's not likely to happen. In that case, it is far better to record your net for the night as your revenue. This makes the record keeping easier as the deposit amount for the night should equal the revenue you claim on your books. Remember, this is cash basis accounting. Tipouts and the like are not accessions to wealth that are clearly recognized for the cash basis business.
Definitely keep accurate records. However, if the dancer works at only one club, or mainly works one club and goes to other clubs only a few times during the year, the mileage deduction is not going to pass muster with the service.Quote:
amount spent on transportation to and from work, if you own your own vehicle, beginning mileage before work, mileage upon arrival, beginning mileage on your way from work, mileage upon arrival home. Please note that should you make any detours for personal reasons these should be noted.
Again, definitely keep accurate records. Under the Rev.Pros, costumes are deductible, clothing is not. If your costume expenses are out of line, the auditor will reclassify them as clothing and deny the deduction. Of course, it helps to have not just a ledger entry for costumes and perhaps a reciept, it makes a big difference at audit time to be able to show the auditor that the item is a costume. There are some specific Rev.Rulings that help with costumes and "work clothing" that are deductible. Unfortunately, none of the Rev.Rulings specifically apply to stripper wear.Quote:
You also need to keep track of any expenditures for outfits/costumes, shoes, make up which is specifically purchased for work, and any other items purchased and used for work.
Only on days away from your primary place of business. For example a dancer who travels to a different club every week for 40+ weeks a year can probably deduct most of her meals. However, if she dances at the same club or a few different clubs in her home city, then meals are not deductible at all. Yet, if she travels a few weeks a year, meals while she is away from her home city are deductible. On meals, the 100 mile rule helps, though it is not definitive.Quote:
Also, keep track of meal receipts, as a IC you have a daily allowance for meals.
Good advice.Quote:
If you keep daily detailed records including all of this information and your deposits in your business bank acct. match up with your records, there is not much way that your record keeping and reported earnings can be argued. Fair warning though, should you decide to stop off and have a drink or something to eat and you have reported that you earned after fees, tip outs, etc. lets say $250.00, but the deposit for that night comes out to $215.00 and you should be audited, this one instance could destroy the credibility of everything else, no matter how honest you were. In the eyes of the powers that be, if you did this one time, more than likely you did it more often than that possibly nightly, but you covered it up through falsified records and forgot this time.
My practice was to leave work and drive past an ATM and make my deposit. If I was working out of town, and my bank didn't have any ATMs where deposits could be made, I would take envelopes labeled for each night and put the money in and put them in the motel/hotel lock box where I was staying. Then just as soon as I got to a ATM or branch, I would make the deposit. That is one reason to have the business account with a bank that has lots of ATMs and branches where you work. Even if you don't plan on using that bank for anything more than your depository institution, the availability of their branded ATMs is worth something.
HTH
Z
several additional comments ...
re 'gifts' from people who are not 'immediate family' members (a.k.a. Sugar Daddies) actually being treated as non-taxable gifts, there is a body of IRS precedent that such gifts to dancers can be treated as 'payment for services rendered' - potentially making (the cash value of) such 'gifts' reportable as taxable income. Obviously this would not apply in the case of parents legitimately giving money to their college student child. However, if a dancer is accepting gifts in any form from a 'Sugar Daddy', there is no guarantee that the IRS is going to the non-taxable gift theory.
re dancers who are claimed as dependents on their parents' tax return, a whole bunch of IRS rules come into play. The most important of these is the relative percentage of total 'support' being provided by the parents versus the percentage of 'support' coming from the dancer's own earnings. If a dancer chooses to under-report her actual income such that her parents are allowed to claim her as a dependent, and if the dancer is later audited, and if the IRS discovers / estimates that the dancer had significant amounts of unreported dancing earnings, it is virtually guaranteed that the IRS will also audit the parents' tax return (since the dancer's SS# is listed as a dependent on the parents' tax return). At best this will result in the parents being assessed for additional income taxes due to their dependent exemption claim being disallowed plus the dancer being hit with a big tax bill on her dancing earnings. At worst ... well we don't want to think about the worst case scenario ( i.e. inflated IRS dancer earnings estimates, opening Pandora's Box on parents' tax details, etc. )
Re the above dependent dancer scenario with college student loans / grants thrown in, as PhoneHome touches on the eligibility for student loan / grant money is tied to total 'family income' not just parents' income. This actually includes both parents income plus student dancing earnings. Thus if the parents have provided 'family' financial info to Sallie Mae that does not include (under-reported) dancing earnings from their student daughter, in essence this constututes defrauding the government. As of a couple of years ago, automatic reporting requirements mean that college bursar's offices, Sallie Mae, and the IRS all share financial information regarding tuition payments and grant / loan payments. Thus if for any reason the IRS were to discover that the student daughter has under-reported her dancing income, not only would the income tax wheels start turning, but Sallie Mae will start turning wheels as well ... which may result in the necessity of repaying student loan / grant money that the dancer was not actually eligible for if her dancing income is included in the 'family' income calculation at best, and could result in fraud charges being lodged against the parents at worst.
There is also a potentially serious Catch 22 situation which may also apply in this regard. If EVERY dancer at a particular club chooses to under-report their income ... i.e. only reporting the amount of earnings the club listed on a 1099 report ... then IRS computers that are comparing the relative incomes of all 'employees' listing the same 'employer number' will probably not raise any red flags. However, if some dancers at a particular club correctly report their dancing earnings, while other dancers at the same club choose to under-report their incomes, an IRS computer cross-check of the tax returns of all of these dancers that have listed the same 'employer number' is likely to turn up vast disparities in reported incomes of different dancers and thus set red flags in motion. While those dancers who did correctly report their incomes aren't likely to get 'slapped' by the IRS, the same cannot be said for their under-reporting fellow dancers and/or the club itself !!!Quote:
does everyone actually pay taxes on their stripper income? (i am not asking for "no i don't"s here or anything) i was under the impression that girls who make a few hundred a day and work a couple days a week (and don't by houses or anything like that) tend not to even report the job at all.
I suspect they do not. It's illegal to fail to report and if you get caught, the service is not gentle about how they treat you.
In case this helps:
I met with my accountant today and gave her the spreadsheet of my earnings. Yes, I had a hefty check to cut to the IRS. I asked her about my other cash deposits (i.e. money from parents, ex boy, etc) and she said not to worry too much about it - especially since they weren't in big increments like a few grand at a time. I hope she's right!!! (FYI I'm not claimed as my parents' dependent, but they do help me with cash here and there)
FYI a big huge thanks to you knowledgeable tax peeps out there! I owe you one.
Wow, this is a very informative thread -- thanks to everyone posting! I was just wondering what a dancer should do if they are considered an employee of a club which reports a static, but arbitrary tip wage per hour for all dancers. Let's say that the club reports your earnings as 15/hr (and pays you just whatever the minimum wage is) and you pay your taxes on this. Are you okay if the total amount you deposit in the bank is enough less than this that you could feasibly live on the difference? Will the red flags you raise from depositing large amounts/singles still matter?
two issues really apply to this scenario. First, IRS computers apply some sort of statistical analysis to tax returns filed by 'tipped employees' with the expectation that no sane person actually works for $2.95 per hour. Based on the working hours inherent in the employer's 1099 report, IRS computers are going to expect to see additional tip income reported which brings the average hourly rate up to at least the $8-10-12 per hour range.
Second, bank employees taking note of 'suspicious activity' on the part of a particular customer regularly depositing large amounts of cash don't care HOW that cash might have originated. That determination falls to the DHS/IRS after the 'suspicious activity' report has been received from the bank.
spending your money is also a risk in itself, if you spend money anywhere that uses computerized systems for inventory and sales.
in this age of logging every transaction instantly, EVEN THE CASH ONES, i am not sure why people think they can spend cash at walmart or coach or nordstrom's and not be at risk just because 'it's not in the bank'. certainly the effort to get taxes/fines is more, but if a state or county is broke enough, it is a matter of time before the process becomes a norm.
^^^ for the moment there is an underlying difference. Yes the IRS can have 5 minute access to every bank account / credit card transaction that a particular person has made. But at the moment the IRS needs some sort of probable cause in order to start looking. That probable cause originates with automatic reports sent to the IRS from banks and financial institutions. originates from red flag analysis results by IRS computers etc. And for the moment nobody is tracking cash transactions of less than $3000 in value as long as a pattern of 'suspicious activity' isn't apparent.
^^ Would it be okay to pay my taxes in cash? I estimate that my tax payout will be much less than $3,000...so would that be suspicious or not?