Very confused Tax Questions
I have already read through your informative posts on the subject, but I am still slightly confused. I think I will eventually contact an accountant. OK, first stupid question :) the taxes that we have to file in April are from what time period? Is that only the time period of 2002? or does it also include jan,feb,march,2003? Now if you claim less than you make, (which alot of girls say to do) how do you avoid getting in trouble if you are audited? If you do not have receits, can you not write these things off? I am a college student, can I use school as i write off? I guess I would have to ask the club that I want to work for what they report (vip rooms etc) Should I get receipts for all of the tip outs and fees? I read a post that said keep money under 400. Is that total? or per night? I do not think that anyone is going to believe that you made 400 dollars the entire year. Finally, how do they decide who to audit? Is it random? Sometimes I need things spelled out for me. :o ::) :P Thank you so much to anyone who can help answer these questions.
Re: Very confused Tax Questions
The taxes that you have to file on April 15 are for the calendar year 2002, which began on January 1, 2002 and ended on December 31, 2002. There may be a few taxpayers left who have differnt fiscal years, but the privilege of electing a different fiscal year was repealled long ago.
If you are self employed you need to file quarterly estimates. But, you still have to file a 1040 by April 15 and pay any taxes owed, or claim a refund if you over paid.
"Now if you claim less than you make, (which alot of girls say to do) how do you avoid getting in trouble if you are audited?"
Well, if you get audited, and you have under reported, you are in trouble. You should report honestly and accurately.
"If you do not have receits, can you not write these things off?"
If you are audited, a lack of reciepts is a problem. Good records, for example a notation on the memo line of a check, can substitute. You are running a business now. Unless you are a statutory employee, it is best to act like a business and keep records.
"I am a college student, can I use school as i write off? "
No.
"I guess I would have to ask the club that I want to work for what they report (vip rooms etc)"
The method they have of reporting this to the IRS is called an IRS Form 1099. The club is required to give you a 1099 by January 31 for all the earnings they report on your behalf to the IRS. However, if a club who is audited and claiming a deduction for amounts paid to you that they did not 1099, that may trigger the IRS adjusting your return.
"Should I get receipts for all of the tip outs and fees?"
Yes. See my comments above about running a business.
"I read a post that said keep money under 400. Is that total? or per night? I do not think that anyone is going to believe that you made 400 dollars the entire year."
Exactly. No one is going to believe you made $400 if it was your sole support.
"Finally, how do they decide who to audit? Is it random?"
It is not random. The IRS has invested huge sums of your money in a very powerful computer and software package that checks returns and compares them against various databases. Anomolies reported by this system trigger audits. In general, the IRS is looking for large amounts of tax to recover and they generally don't waste time chasing after small amounts. However, that may soon be changing as they are looking at outsourcing small collections. In addition, they sometimes make a decision to "target" certain professions for enhanced enforcement. Waitresses got "targeted" a few years ago. That has lead to a bunch of new reporting requirements in that field. This was done even though individual waitresses make a fairly small amount of money. (Compared to Point Guards in the NBA. But, there are lots more waitresses than there are Point Guards.)
HTH,
Z
Re: Very confused Tax Questions
Zofia's Post is technically correct, however it is not the way most dancers handle thier Taxes. There are several questions you have to ask yourself to know the best way to file.
The Tax return you file in April is for the period of Jan 1 thru Dec 31 of the previous year. (2002 for this year)
The FIRST question you have to ask is: Does the Club have my Social Security Number? (Which can mean do they have a copy of my drivers license) Many Clubs do not have this info on thier Independant Contracted Dancers. If you are positive that they do not then some of your income can be "Sheltered" . The IRS expects a Student to earn less than a person who is availablle for full time work. A good average income for a full time worker is $10 per hour for 40 hours a week ($400 a week Gross). A student can report less.
Question #2: How much do you SPEND in recorded transactions? This is ANYTHING you write a check for and also how much do you deposit into that Checking/Savings account. Even making a Car or House payment in cash has to be considered since it has a "Paper Trail". If it can be proven that you spend more than you report in earnings you can be in trouble at audit time.
Question #3: Am I a Business? Most dancers do not consider themselves as a business (even though they shoud legally) . If you DO report as a business it means filing a Long form 1040 & Schedule C. Also it includes ALOT of paperwork and records that many dancers just can't seem to do. Reporting as a Business is where saving all receipts is a necessity.
If you choose to file a 1040 EZ and report $300-400 a week as income then expenses such as house fees and tipouts should be subtracted from your Gross EARNINGS to determine Gross INCOME. If you don't walk out the Club door with it ... you never really had it to begin with. (Earnings vs Income)
Some College fees ARE Deductable even on the short IRS forms. Ask your Faculty Advisor about this.
One of the BIGGEST questions is: Do you have children and are you potentially eligible for the EARNED INCOME CREDIT? If so you can actually get a refund even if you paid Nothing in. This is a whole seperate topic however.
Bottom Line: If you recieve a W-2 or a 1099 form from the Club you are locked into reporting that amount. If NOT, then you have some oprions that may save you money.
Re: Very confused Tax Questions
I think that the original post asked such broad basic questions of tax preperation that she is best off sitting down with a CPA in an interview processing and going from there.
All these questions are easily answerable but all the "if... then"s would be more than a little confusing.
Advice on choosing a tax prepaper:
--Someone who or a company who is open year round and not just during tax season (Jan-Apr), this not includes the company but also the preparer who actually does your work.
--someone with experience preparing Entertainer's AND small business returns.
--always deal with people who are discrete and will not share your personal information (don't go H&R Block, Jackson-Hewitt, etc... a number of people see that information whether they admit it or not).
With that said, most college campuses offer free tax preperation to the poor and/or college students (the school Accounting Society students usually do it along with local tax preparer volunteers) if you feel know someone and feel comfortable with them.
Re: Very confused Tax Questions
"Zofia's Post is technically correct, however it is not the way most dancers handle thier Taxes."
Which is why dancers get into trouble when the IRS gets curious. She was asking basic questions witha desire to do the job right. Too bad you encouraged her to do things that will only lead to trouble. And people wonder why we have a bad rep.
Re: Very confused Tax Questions
To each their own, but i have a great accountant, and have been dancing since i was 21, i am now 32. Also includes my webcam and phone sex preperations. Never had a problem. More power to all the newbies and the route you all take. I just like a one on one conversation, and making sure the job gets done. Pamela ;)
Re: Very confused Tax Questions
Zofia: Perhaps you should re-read the original post as it seems to me her QUESTIONS were specificly about avoiding an audit when UNDER-REPORTING which you dismissed with the admonition "Don't do it".
Possibly you don't realize that many Clubs do not track a dancers income for 1099 purposes and subsequently do not file 1099's on that income (or expense from the Clubs POV) simply because the Club never sees that money. Its a direct transfer from CUSTOMER to dancer and very very few Customers are going to file 1099's on dancer tips. As an Illustration .... Do YOU (Zofia) produce and File 1099's on your tipouts to ALL Club personel? You legaly should but I'm willing to bet that you don't.
Sunshyne's specific questions were:
Quote:
the taxes that we have to file in April are from what time period?
We both answered this: Jan 1 thru Dec 31 of the previous year.
Quote:
Now if you claim less than you make, (which alot of girls say to do) how do you avoid getting in trouble if you are audited?
You said "Don't" .... I answered the question.
Quote:
I am a college student, can I use school as i write off?
You said "No" ....... In many cases you are WRONG.
Quote:
Should I get receipts for all of the tip outs and fees? I read a post that said keep money under 400. Is that total? or per night? I do not think that anyone is going to believe that you made 400 dollars the entire year
We agree IF reporting on Sched C that recpt's are important. If not I explained how to handle it. The median income is $400 per Week. YOU Skipped this entirely.
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Finally, how do they decide who to audit? Is it random?
Audits are usually initiated due to a "Flag" which can be anything from a math error to a percentage mismatch or a discrepency in the "Paper Trail" but are also at times randomly selected. You CAN Avoid the "Errors" and the Paper trail" ...... You cannot avoid the random selection.
Dancers represent a TINY Minority or the IRS Audits every year. Tax status has very little to do with the general "Dancer" reputation. That reputation is based MUCH more on what you WEAR at work than what you do with the money you make there. Unfortunately, in our society, It's difficult to respect the brilliant mind and honest nature of a Naked woman asking for money. We just aren't THAT enlightened ...Yet.
Re: Very confused Tax Questions
DJ,
I think it's time for you to grow up, or for Pryce to stop letting juvenile delinquints post on this board.
Re: Very confused Tax Questions
The MAJOR change in IRS auditing procedures over the past couple of years is that they have vastly upgraded their computers and their reporting links from employers, banks, stockbrokers, state title offices (real estate transactions and car registrations), credit card companies etc. This now allows the IRS computers to basically know how much money you are spending through your credit card or checking account, how much you are spending on a new home or car, how much money you are investing etc. The IRS Computers then compare the amount of money you are spending against the amount of money you claim to have earned on your tax return plus some average cost of living amount for your state and city. If there is a major discrepancy, like you reported $30,000 in earnings but spent $1000 a month through your checking account on bills, another $1000 a month through your credit card, plus you registered a new car worth $25,000, plus you saved $5,000 in an IRA plus you made $1000 a month in mortgage payments etc., a huge red flag is going to go up!
Re: Very confused Tax Questions
Some of those are red flags (IRA contributions and Mortgage Interest) but other things credit card bills and bank statements (unless you make deposits over $10,000 in cash or other large cash transactions frequently) are not red flags in them self. If the IRS is looking at these things it's because they're building a case against you. They do a "lifestyle" audit where they'll use your zip code to decide if your expenses seem reasonable (large travel expenses if you live in Hawaii)
It's hard to say what's a red flag on an entertainer's return without specific examples Red flags could be a major flux in income, showing a large loss, or having large expenses in otherwise unusual places.
Re: Very confused Tax Questions
while reading through these posts there is a lot of truth but mainly one i disagree with is if you are a student you can use this as a credit against a tax liabilty to lower it its called the hope credit if you are in your first two years of school or the lifetime learning credit if after two years. form # 8863
as far as underreporting tips i do i take into consideration what i have deposited in to accounts -purchases etc..... it just depends on your situation.
i would be glad to talk more with you more intensley through email if youd like ........my day job.....I am a tax accountant and work for three years and h&r block and might add the comment earlier about sharing your info with others is untrue....we might speak with others we work bound to the same confidentiality with to see what best tax deductions can be taken
but no one outside of.
Re: Very confused Tax Questions
if you make eighty thousand a year dancing, most likely you will not want to report all that income. This is something you have to be very smart about because the "paper trail" tells all. if you deposited more in your bank account then you claimed in a year, the IRS will wonder where the money came from. if you claim 20k a year for income and your mortgage and car payments equal 30k, the IRS will wonder where the money came from. Essentially, you want to claim at least what you are showing on paper for all you bills, and the money you have put into the bank for that year. This is a cash business and it should be treated accordingly. Let's use a strip club owner for example. He owns a cash business, if he makes 300k of profit in one year you might expect him to claim 75k-150k. All the cash he has spent on chlothes, vacations, hotels, shopping, ect. do not always get reported. YES, THIS IS ILLEGAL, but i am just giving a glimpse on the inner workings of a cash business. if you disagree ladies, good for you, but this is how real life is. Cash business usually do not report all of their income because there is no record of it. I know everybody will disagree with me as usual ,but this is what ive seen in my life. i work for a contractor and if he gets a cash job, it goes in his pocket, if he gets paid by check it goes in the bank and gets reported to the irs and taxed accordingly.
Re: Very confused Tax Questions
I wrote off my whole room i do for phone sex, and webcam. This includes, laundry, curtians, pillows etc. All the simple things one would not think would be important.
Not just toys, and outfits! But even the lights i bought for cam, and my POLE. I have used it on cam before. All refunds!!! Legal..Yes!
Re: Very confused Tax Questions
I was just rereading this thread before I nervously file. (I know I should file an extension and get an accountant because I don't know what I'm doing.) DJ_Wulf said in an earlier post, "If you choose to file a 1040 EZ and report $300-400 a week as income then expenses such as house fees and tipouts should be subtracted from your Gross EARNINGS to determine Gross INCOME. If you don't walk out the Club door with it ... you never really had it to begin with. (Earnings vs Income)"
Could someone elborate on this? Is it possible to do that if I receive a 1099 stating "nonemployee compensation" and a seperate statement of house fees paid in? If the club has reported the amount on the 1099 to the IRS, is that what I have to report as wages and then deduct house fees after that? Thank you for any last minute or even past deadline help.
Re: Very confused Tax Questions
If you got a 1099 you have a "paper trail" and will need to file correctly. Non-employee means you are considered an independant contractor. This means you will need to file the long form 1040 and a Schedule C. Deduct the house fees as either Rent (part 2 line 20) or Commissions & Fees (part 2 line 11) on Sched. C.
1099 (non-employee) income is not considered WAGES. Its Gross Receipts and is reported on Part 1 Line 1 of Sched. C.
I suggest using turbotax because the program walks you thru all the forms. It will cost you $60 but you can do it in a day and file electronicaly on time. (Disclaimer for Pamela----- turbotax may not be the most private method of filing but it is the easiest and cheapest)
The problem with extensions is that you still need to estimate (and pay) the tax owed and to accurately estimate it ...you might as well just file. You're not alone in the nerves or the procrastination. I know 50 dancers that are franticaly working on thier taxes tonight.
Re: Very confused Tax Questions
Anais, just to follow up, when the IRS receives a 1099 report from a business which normally involves tips, the IRS computers are going to expect to find at least two things in the tax return of the person who received the 1099 ...
#1 they will expect to find 100% of the income listed on the 1099 form reported as income
#2 they are going to expect a certain percentage of additional income over and above the amount listed on the 1099 form reported in the form of tip income
There was a major flap over this issue in a recent supreme court case, where the supreme court determined that tips and gratuities are in fact taxable income under all circumstances, where previously there was debate as to tips being considered a "gift". The IRS is focusing hard on the subject of tip income taxation this year as a result. In fact, the IRS has already cut deals with certain large 1099 style businesses (like Vegas Casinos) where the Casino agrees to report a certain standard percentage of tip income over and above the amount that it paid out in normal "1099 income" on behalf of its workers. This makes it impossible for the Casino workers to under-report their tip income in the future, and they may find that the Casino reports more in tip income than they actually earned!
These deals were brought about by the IRS auditing the businesses after they found that the business' reported worker expenses didn't jive with the workers total reported income. Not that I have any specific information in this regard, but "Corporate" club chains are ripe for a similar IRS investigation - particularly considering the effects of the new California "employee" dancer law and the fact that all major "Corporate" clubs have operations in California.
For more info go to - then scroll down the page to play the "Taxes on Tips" report (it's audio)
Re: Very confused Tax Questions
Another tax quandry: My club used to report to the IRS that we each made $100 per shift, no matter what. But at the start of this year, we now have to report each night what we've earned. And they make us claim at least minimum wage. Which, of course, we ususally make a lot more than that. But I am confused by what some girls report. Some always report that they just made minimum wage. I don't think that will be believeable to the IRS. But I have had two shitty nights this year that I have not made minimum wage. So I have been under-reporting by about $40 a night, to "make up" for these potentially horrible nights. But the other day, one dancer had a bad day. I only saw her do 1 dance. Then she told me that she didn't even make her house and that she had only done one dance. But I noticed that she reported she made $160. Why would she do that? I haven't asked her yet. But I'm just confused by this whole process and why some would under-report and some would over-report. ????
Re: Very confused Tax Questions
Well, the girl that reported $160 in income is volunteering to pay somewhere around $40 in federal tax and $10 in state tax on that $160 she reported, because that $160 will get added into the total earnings which the club will report to the IRS at the end of the year. Working that night cost that dancer $50 out of her own pocket, she just doesn't know it yet! And if that dancer doesn't send in a check for that $40 to the IRS and that $10 to the cal state tax authority along with all the other taxes due on the total income she has reported to the club so far this year by June 15th, she'll wind up owing even more taxes due to penalties for failure to make estimated tax payments. I just hope that this "ficticious income reporting" which the club is allowing dancers to do does not throw up a huge red flag at the IRS which in turn gets every dancer working in the club audited!
I suspect the reason that the club will not allow dancers to report less than minimum wage is that the new California law classifies dancers as statutory employees - therefore the club is SUPPOSED to be paying you minimum wage whether you actually earn that much from club customers or not. If dancers reported less, it would bring this fact to light and could cause major grief for the club.
Also, the fact that the club is making a big deal out of minimum wage is that it probably intends to treat its dancers as statutory employees at the end of the year for its own reasons (that way it gets to deduct the money it pays out to dancers as private dance and champagne room splits off its own taxes). This obviously helps the club's profits, but it also means that as a statutory employee your "house fees" and tipouts which you paid to the club cannot be subtracted from your reported earnings as a business expense. Only up to 2% of a statutory employee's taxable income can be deducted as employee business expenses, which if you earn $1000 a week before house fees and tipouts only adds up to deducting $1000 in house fees and tipouts combined for the whole year. If you're actually paying more like $50 a night = $250 a week in house fees and tipouts, then you just chose to make an $11,500 gift to the club out of the goodness of your heart over the course of the year which cannot be subtracted from your taxable income. However, since by the letter of the new California dancer law it is illegal for the club to be charging statutory employee dancers house fees in the first place, you could try writing it off as a loss due to "theft"!
The tipouts are not illegal however since you pay them to private individuals, so the only way you could write off tipouts is if you yourself issue 1099's to the DJ, bouncers etc. for the amount of tipouts you paid them throughout the year. However, if you do, this might technically make you their part time employer and I wouldn't even want to think what sort of Pandora's box that might open!
According to my accountant, it appears that the new California law and statutory employee status is being "played" by the clubs to allow them to reduce their own tax burden by increasing the tax burden of the dancers instead. By "illegally" still charging house fees and tipouts, this turns into 100% pure profit for the clubs. The way the California clubs are playing it, they're getting and keeping the best parts of being a statutory employer, but ignoring the costs and responsibilities which are supposed to go along with that status (like paying a guaranteed minimum wage no matter what, and not being allowed to charge their statutory employees any fees in order for them to work, just to name a couple).
If you really want to cover your own butt, I would come right out and ask the club whether they are treating you as a fully Independent Contractor (in which case you can subtract your house fee and tipouts off the top and claim zero or even negative earnings for the night), a statutory employee (in which case you should get paid "tipped" minimum wage by the club no matter what you earn from customers, and should not be charged a house fee), or a full fledged employee (in which case you should get minimum wage or higher along with workmen's comp with no house fee or tipouts, but the club could also keep 100% of any private dance or champagne room money spent by customers and wouldn't have to share any of it with you).
Re: Very confused Tax Questions
Melonie, thanks. yes, I'll ask. I just feel stupid asking after the year is almost half over. But I'll feel more stupid next April if I don't ask now. The other dancers are clueless as well.
I am in Illinois. You are always SO knowledgeable (and always make such thourough responses which must take a lot of time. Thank you.) How can I find out about laws here? Tax laws and other laws?
Re: Very confused Tax Questions
To the best of my accountant's knowledge, Illinois follows IRS federal definitions and policies i.e. dancers are presumed to be independent contractors. Unfortunately, in regard to state criminal laws which might apply to strip clubs i.e. prostitution, Illinois does not appear to maintain a state website with criminal statutes posted. Lexis.com, findlaw.com etc. will surely have these but they are not free services. If you're willing to spend money to find answers, you're better off hooking up with a local attorney for a $100 consult and getting all the right answers for your particular area (plus a handy business card to keep in your purse if you're ever in a situation of being given one phone call!). Any local ordinances covering dance clubs will almost certainly require a personal trip to city hall to obtain a copy yourself.
I must have mistakenly assumed you were from California, because I have been harping away about the potential high risk situation created by the new California dancer law. Even so, the only thing different about my posts in regard to Illinois dancers would be that all stage fees, tipouts, private dance splits etc. regardless of the total annual dollar value can be deducted as business expenses by an independent contractor.