what this week's ObamaCare Repeal Vote means to dancers
After being postponed by the highly publicized Arizona shooting, the ObamaCare Repeal vote will finally be held this week in the US House. If this vote fails to carry the Senate ( which is highly likely ), this is what ObamaCare is likely to mean for 'serious professional dancers '
- the current 15.3% Social Security + Medicare tax ( a.k.a. self-employment tax ) will increase to 18.2%. This will apply uniformly regardless of income level up to $200,000, and would take effect in January 2013. Approximate real world additional cost to a 'serious professional dancer' earning $100k a year would be in the $2,700 a year ballpark.
- under the widened 1099-misc reporting requirements of the ObamaCare law, as self-employed persons dancers are now requlred to keep track of payments to all other 'businesses' ( including clubs, DJ's, Bouncers etc. ), and to issue them a 1099-misc form in the spring of 2012 listing total payments made to them by the dancer in 2011 based on information collected via W-9. Failure to track and report these payments effectively renders such dancer payments to clubs, DJ's, Bouncers etc. to be non-tax deductible voluntary gratuities, as well as exposing the dancer to potential IRS penalties.. Approximate real world additional cost of non-compliance would potentially be $500 times the total number of clubs, DJ's, bouncers etc. involved, PLUS the additional taxes the dancer must pay as a result of non-reported payments to clubs, DJ's, bouncers etc. being considered by the IRS to be HER income not theirs.
- under the ObamaCare law, dancers who do not purchase health insurance will be subjected to a new tax penalty of 1% of AGI in 2014, 2% of AGI in 2015, and 2.5% of AGI in 2016. Real world additional cost to a 'serious professional dancer' is on the order of $2,200 per year from 2016 forward.
- under the ObamaCare law, capital gains taxes on dancer investments will increase from the present 15% to 23.8% in 2013. Similarly, taxes on dividend income will increase from the present 15% to the dancer's probable 'ordinary income' marginal tax bracket i.e. 28-31-33%. Municipal bond interest would remain tax exempt.
- under the ObamaCare law, the IRS is empowered to follow an 'economic substance doctrine' which permits them to disallow otherwise completely legal tax deductions if the IRS unilaterally decides that the financial arrangements leading to such deductions lack 'substance' ( i.e. were of primary benefit as a means of reducing tax liability ). This could have far reaching consequences for 'serious professional dancers' who have set up LLC or S/C corps as a 'conduit' for purchasing vehicles, life / health insurance coverage etc. with 'pre-tax' money.
Re: what this week's ObamaCare Repeal Vote means to dancers
an update ...
The US house voted in favor of repeal today. See The US senate leadership, however, has promised to block any similar vote from being held in the senate. If this doesn't change, the path toward legislative repeal is essentially dead. Even if it does change, without President Obama's agreement a legislative repeal would require a super-majority senate vote which is highly unlikely. Thus 'serious professional dancers' will need to face the reality of stiff tax increases hitting them from several different directions after the end of next year.
Six more states joined the Federal Lawsuit that already represented 20 states all challenging the constitutionality of various provisions of the ObamaCare law. See It's possible that the resulting court rulings could repeal some aspects of ObamaCare without the need for legislative agreement. However, both the timing and the ultimate outcome of any such court rulings are huge unknowns - with the distinct possibility that court rulings would only affect certain constitutionally questionable aspects of ObamaCare ( like the imposition of the IRS penalty for not privately purchasing health insurance coverage or the unfunded mandate to states to provide low cost public health insurance coverage ) while leaving other aspects of ObamaCare ( like the Social Security / medicare / income tax / investment tax increases ) still in effect.
As such, at the very least, 'serious professional dancers' should consider adjusting their financial affairs in anticipation of significantly higher 'Self-Employment' tax rates, significantly higher cap gains and dividend tax rates applying to 'normal' investment income, significantly higher ordinary income tax rates applying to their dancing income etc. after the end of next year.
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Re: what this week's ObamaCare Repeal Vote means to dancers
I tell you what man, I am thanking my lucky stars for those Republicans in Congress right now.
Re: what this week's ObamaCare Repeal Vote means to dancers
^^^ well, sticking with the 50% economic content rule, I'll try to avoid any heavy discussions of the politics behind ObamaCare. Suffice it to say that while the republicans in the house unanimously voted for repeal, the democrats still control the senate - and are thus able to block a similar vote. The end result, of course, is likely to be that today's house vote will amount to little more than a symbolic statement that will have zero real world effect on the scheduled implementation of ObamaCare tax increases and compliance mandates.
My aim in posting this thread was to try and inform 'serious professional dancers' that their $100k per year gross incomes which currently translate into perhaps a $70k 'after-tax' income are likely to only translate into perhaps a $60k 'after-tax' income from the same $100k gross income after 2012 ... maybe less than that if the constitutionality of the new IRS penalty for failure to privately purchase health insurance is upheld by the courts. Similarly, 'serious professional dancers' whose investment 'nest egg' cap gains and dividend earnings are currently being taxed at 15% will very probably see that tax rate jump to 24%+ after 2012.
Obviously, tax rate increases of this magnitude will bring into play some 'rethinking' of economic strategies. For example, 'self-employed' persons are going to be hit with a larger tax increase than 'employees'. Additionally, 'self-employed' persons are going to be hit with a new IRS penalty if they do not purchase health insurance coverage - compared to 'employees' who can avoid new IRS penalties if their employer provides health care coverage as an employee benefit. Thus in terms of total 'after-tax' dollars remaining at the end of the year, earning $50k a year as an 'employee' after 2012 may in fact come out ahead versus earning $100k as a dancer but paying higher tax rates plus paying private health insurance premiums out of pocket !
Along similar lines, dancer 'nest eggs' may also bear some 'rethinking' in terms of the equivalent value of tax favored / tax free investment vehicles versus conventional stock shares becoming subject to MUCH higher tax rates. Also, because future dividend payments will add to regular dancing income in determining effective marginal income tax rates, high dividend stocks will become far less desirable. As a larger number of American investors figure out these potential changes, they will begin selling off less desirable types of investments ( thus lowering the market price ) and begin buying more desirable types of investments ( thus driving up the price ). Thus if dancers make these adjustments before the main body of American investors do, they can get a better price for the now less desirable types of investments they already own, as well as being able to buy into more desirable types of investments at lower prices.
Also, while we don't have enough details yet to run this calculation, the 'steepening' of the new progressive income tax rates under ObamaCare will further decrease the 'after-tax' value of that last increment of ordinary income. For 'serious professional dancers' this will raise very serious questions as to whether working 5 days a week versus only working 4 days a week actually provides a dancer with any more net dollars in her pocket once progressive income tax liability on the 5th night's additional earnings, plus increased IRS penalties for not buying private health insurance coverage, plus the increased expenses involved with going to work that 5th night, are all factored in. We are already fairly certain that the 5th night's income will be subject to an 18% 'self-employment' tax, plus a probable 28-33% marginal federal income tax rate, plus additional state and local income taxes. Thus on $400 in gross dancing earnings from the 5th night, 50-60% of those earnings will probably go directly to taxes after 2012, leaving the dancer with only $160-200. Now subtract the cost of gas / tolls / cab fare, subtract the cost of perhaps a restaurant breakfast or a babysitter etc. from that $160-200 and it starts to become questionable whether or not it was worth expending the energy to work that 5th night in the first place. This becomes even more true if the extra income from working that 5th night also kicks the effective tax rate on the dancer's 'nest egg' dividend / interest earnings upward by an extra 2-3-5% !
In a nutshell, the increased tax rates applying to self-employed persons like 'serious professional dancers' will provide strong motivation for those dancers to start thinking and acting in a manner that 'rich' people have already followed for years ! In other words, under ObamaCare tax rates, even at the $100k a year earnings level it will soon become necessary to figure out the 'net of taxes' effect of both regular earnings and investment earnings to minimize potential situations where they are effectively 'working for nothing' ( i.e. working almost exclusively to pay additional taxes !).
I would also point out that another provision of ObamaCare is an IRS authorization to expand their staff of auditors and investigators by nearly 40%. With a steeper progressive income tax curve placing more tax money at stake, and with exotic dancing already falling into two 'high risk of tax evasion' categories i.e. an adult business plus a cash business, the future ability of dancers to simply ignore the new tax consequences of ObamaCare without significant risk of the IRS catching up to them will be far lower than it is today.
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