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What types of deductions can I claim when filing taxes?
I started getting (and keeping) receipts this past year (2005) for my nightly tip out/door fee and my monthly locker rental. My club issues 1099's to entertainers, and I've always filed as single/head of household with only my credit card income claimed (as this is the only $ reported on the 1099), plus my 2 kids as dependents. Thus far, I've always gotten a refund and owed no taxes (because of my kids). I'm hoping to earn some kind of benefit from the receipts I've collected all year, but I worry about how it may offset the amount of income I claim (usually it's a low amount, since I encourage my customers to pay cash whenever they can). What guidelines should I follow when preparing my tax return for this year? I've been doing my own taxes with Turbo Tax for the past 5 years, and would like to do it the same way this year.
Also, in the future, would there be any benefit if I were to set up a DBA and file as a business. In regards to that matter, could I set up the DBA using my entertainer name "Savannah", and file with my legal name? How does that work? :confused: :confused:
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Re: What types of deductions can I claim when filing taxes?
Just one question...are you married filing separately, or divorced/single?
You cannot deduct the tip-outs. The house fees, I believe are deductible.
The receipts you SHOULD be keeping are the ones for the make-up you purchase, the shoes, the equipment, etc. THOSE can be written off. Did you save any of those receipts?
Can't answer the DBA questions, though.
I just want to give you a heads up about "customers paying cash". You are not "flying" below the radar if you go from being in the same business and taking new, lengthy deductions...it may red-flag your return. Also, just because you don't CLAIM all of the money that you make...if you put that money into an account...or if you live above the "income" (and hide the money in the mattress) and the IRS does an audit, you will be required to pay the taxes on the IRS's adjusted income, plus penalties and interest.
Just because you do not CLAIM the money on your taxes, does not mean that you are getting away with not paying the taxes. If they audit ONE year on your tax return, they can go back an additional 3 years. If they find that you "cheated" on your current year's taxes, you can bet that they'll be looking even harder and scrutinizing your past taxes even more. I believe that if the IRS finds that you've been intentionally dishonest on your taxes, it takes the "time limit" off how far they can go back (but, I'm not positive). Remember, just because you didn't get audited last year for doing the same thing, doesn't mean that it's ok...or that you'll get away with it. They may not ever audit you...but, with the new super computers and programs they have, the computers do it all and all that is left is for the auditor to look it over and give you a call. Just be careful.
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Re: What types of deductions can I claim when filing taxes?
As Venus is saying in not so many words, in the good old days the IRS only received automatic reports of income. If a person received significant amounts of cash income which was not included in a 1099 automatic income report, and chose not to declare that income, the IRS really didn't have a way to cross-check the validity of the amount of income that person actually did claim.
However, those good old days are now gone forever. The IRS now not only receives automatic reports of income, but also automatic reports of expenditures. This always includes house and car purchases/leases, any cash purchases/transaction in excess of the federal/state limit (federal is 10 grand, states may be much lower - NY is 3 grand). This also includes typical costs of living calculated for every zip code in the USA. Thus the IRS supercomputers now have a large amount of 'expenditure' side information at their disposal to match up with the 'declared income' side of the equation. If the IRS computers find that a 'gap' exists between the amount of income a person has declared, and the amount of income actually necessary for that person to pay for monthly house and car payments, cost of living, plus large expenditures/transactions, it's pretty much guaranteed that an audit will quickly follow.
Thus as Venus says, it is possible to stuff undeclared cash in a mattress without triggering immediate IRS suspicion. But the day will come when you'll want to buy a house or a car or a large screen TV, and when you do an automatic transaction report will be sent to the IRS - which will promptly lead to the IRS starting to ask questions in regard to the source of that money.
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Re: What types of deductions can I claim when filing taxes?
First let me state that everything VG and MC-the hammer says is 100% possible. The consequences of getting ensnared in an IRS audit and a finding of tax evasion can be devastating. Never forget this point.
The operable item is that it is not automatic and not everyone gets caught. The IRS is not today sitting their balancing everones checkbook and looking at who spent $100 more than they could account for in income. the IRS is always going to focus on one or two things--tax evasion by otherwise criminals and complaince with broad media coverage. Every one tax cheat who gets exposed on the 6 o'clock news yields ten people who voluntarily pay what they owe.
The bad side--you would be a prime media posterchild for prosecuting and exposing tax scoflaws. An exotic dancer who cheats on their taxes and gets caught and made an example of is worth reams of free publicity for the IRS. It would be on and in the news for days, especially if they get you in sweeps month and you are between segments on losing weight and men growing hair on their bald heads.
You might not get caught, but if you are the penalties are very high and they will leave you slowly twisting in the wind as an example for all the cabbies, servers, shade-tree mechanics, gardeners, cleaning ladies,and other cash businesses.
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Re: What types of deductions can I claim when filing taxes?
^ Monty, do you agree that filing a vastly different return (i.e. MORE deductions, etc) while working the same job may trip an audit?
I also know that when you 1099 with a club, even if that club has a "front" the IRS is aware of what kind of business it is. They also know that while you make money on credit card, the vast majority of your money is in cash tips. The club will only report what you made in credit card tips, but if your club is anything like VIP's was...they keep track of how much you paid out (house fees)...how much funny money you turned in (they keep 25%). If the CLUB got audited (and these businesses do get audited) they CAN run the social of all the dancers that were employed there. The club, by law, has to open all of it's accounting books to the IRS (and they will). The IRS can catch a discrepancy this way, as well. The club may not report how much you made in funny money, but it's in their books.
Are the chances high that you'll get audited? No, probably not...but in a time where dancers are said to make THOUSANDS per night and with all of the "credit card fraud" going on at the clubs that put the dancers money in the spotlight at the end of the year...I would not be surprised if more than a few dancers (and clubs) found themselves audited.
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Re: What types of deductions can I claim when filing taxes?
I don't think you can deduct the house fee unless you are reporting your income before taking it out which is pretty much doing the same thing. For instance, say you earned $450 after paying a $50 house fee. You can either report income of $500, then deduct the $50--=$450. Or you can just report the $450. Same result either way. What you can't do is report the income of $450 then deduct your house fee again. That would be taking the same deduction twice. So I don't bother trying to deduct that stuff, since it has already been deducted, if you see what I mean.
The locker rental I would think is a legitimate deduction.
But this is dangerous: "I've always filed as single/head of household with only my credit card income claimed"--that is bad, especially if it doesn't match up with your standard of living or major purchases.
I don't think there is a particular benefit to becoming a DBA. There might be some to being an LLC as far as expanding the deductions you can take, but believe me, you won't be able to only report what the club reports for you and be able to justify taking the extended deductions available to the self-employed.
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Re: What types of deductions can I claim when filing taxes?
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Originally Posted by VenusGoddess
^ Monty, do you agree that filing a vastly different return (i.e. MORE deductions, etc) while working the same job may trip an audit?
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Of course VG. 10 gazillion things could produce an audit, and the IRS is not laying out a blueprint of what does. As has been mentioned before angry ex-lovers can file a complaint, jealous co-workers can turn you in, and productive audits (for the IRS) of co-workers filing bad returns, tax avoidance by the boss (cheating on liquor/sales taxes), criminal conduct by a co-worker (say a drug bust). Cheating on your taxes is like getting caught for any crime, any slip leaves you exposed. You can drive 3 mph over the speed limit and not get caught, but if you do 30mph over the speed limit you stand out like a sore thumb.
The single best reason to pay exactly what the law says you owe is because if you get caught the penalties can be astronomical--the IRS owns your ass and does not thank you after it reams it.
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Re: What types of deductions can I claim when filing taxes?
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Originally Posted by Susan Wayward
What you can't do is report the income of $450 then deduct your house fee again. That would be taking the same deduction twice.
By claiming 450 instead of the 500 before housefee, aren't you cheating? Because 50 dollars of unreported income is more than the taxes on 50 dollars of reported income. Suppose 50*4days per week =200*40 weeks=8,000. So you are not reporting 8,000 in that instance.
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Re: What types of deductions can I claim when filing taxes?
I'm not certain about that -- since it's an allowable deduction, you don't have to pay tax on it, right?
I don't actually count that as "my money" since I don't walk away with it at the end of the night.
Lucky for me I've been keeping fairly detailed records of house fees, tip-outs, parking, take-home pay, deposits; whatever my accountant ends up telling me, I'll (I hope) have actual numbers instead of estimates.
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Re: What types of deductions can I claim when filing taxes?
Aside from house fees, when counting deductions, ask yourself: "Does this help my business?" Here's a laundry list of items I or dancers I know have deducted:
-hair products
-hair styling (cuts, color, extensions, etc)
-makeup
-plastic surgery
-tanning
-manicures & pedicures
-exercize equipment
-gym membership
-dance lessons
-travel expenses to out-of-area clubs (namely Vegas)
-computer & software
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Re: What types of deductions can I claim when filing taxes?
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Originally Posted by ChloeTheRed
I'm not certain about that -- since it's an allowable deduction, you don't have to pay tax on it, right?
I don't actually count that as "my money" since I don't walk away with it at the end of the night.
Lucky for me I've been keeping fairly detailed records of house fees, tip-outs, parking, take-home pay, deposits; whatever my accountant ends up telling me, I'll (I hope) have actual numbers instead of estimates.
Let me know what you find out b/c this is one of the things that confuses me.
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Re: What types of deductions can I claim when filing taxes?
B/c even tho u dont have to pay tax on it I would think you still have to claim it, otherwise you run the possibility of being in a different income bracket (if you just don't declare all your deductions assuming you won't pay taxes on them, as opposed to claiming and calculating your deductions)
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Re: What types of deductions can I claim when filing taxes?
If you are an independent contractor, house fees and locker rent are deductible business expenses ... which offset income on a dollar for dollar basis on Schedule C. If you are an 'employee' dancer, it is arguable that house fees and locker rent are NOT legitimate deductions since it is technically illegal for the club to mandate that you pay such fees. Technically speaking, 'employee' dancers can only count house fees as a voluntary charitable gift from themselves to the club. In the real world, many dancers simply take house fees straight off the top, and consider the amount of money they walked out of the club with at the end of the night as their 'gross' income. However, if you're working at a club with very high stage fees, where the club keep records of stage fees being received, you'll want to declare these payments separately ... since there will be club records with your name attached if/when the club is ever audited. Also, in clubs with very high stage fee it is possible to wind up 'in the red' on certain nights (i.e. the club charges $300 stage fee and you only earn $250 back), and you can only claim a loss if you separately declare nightly earnings and nightly stage fees.
Same situation applies to tipouts paid by dancers to individuals who are also independent contractors i.e. bartenders, DJ's, bouncers - these are legitimate business expenses and deductible on Schedule C. However, if these persons are 'employees' of the club, then the same voluntary charitable gift situation technically applies, since it is illegal for the club to mandate that dancers (independent contractor or 'employee') to pay fees to club 'employees', therefore any payments which are made by dancers to 'employee' bartenders, DJ's ^ bouncers must be voluntary charitable gifts.
There is also a 'sticky wicket' that IRS rules require the dancer to issue a 1099 form for payments made to another independent contractor when $700 or more are paid to the same person in the same year. This can get extremely inconvenient if for example a dancer has paid $2-3,000 to the same DJ over the course of the year. Issuing the DJ a 1099 will first require that you find out his real name, address and SS#. Issuing the DJ a 1099 will also force the DJ to declare and pay taxes on his tipout income. But failure of a dancer to issue a 1099 to the DJ may technically put the dancer's tipout deduction at risk if the amount exceeds $700 in the same year. Again in the real world many dancers simply take tipouts to DJ, bouncers, bartender etc. straight off the top, only count the money they actually walk out of the club with at the end of the night as 'gross' income, and avoid the 'sticky wicket'.
As far as deducting other peripheral things, i.e. tanning sessions, hair care products, makeup, even bikinis and cosmetic surgery, technically speaking these things fail the so called 'housewife test'. The IRS criteria for deductible business expenses stems from the fact that these expenses are for business and not for personal benefit. Thus if a 'housewife' - i.e. a person who has no business reason to do so - buys tanning sessions, hair care products, makeup, bikinis, cosmetic surgery etc. then it is arguable that she is doing so for purely personal benefit thus a dancer spending money on the same sort of things must also be of personal benefit and not deductible as a business expense. However, the IRS's own rules regarding 'ordinary and necessary' expenses required to conduct business conflict with the 'housewife test' under many circumstances. In the real world, many dancers claim 50% of the actual expenses for items that fail the 'housewife test' as business deductions, a concession that these items are 50% for business reasons and 50% for personal benefit.
Obviously, business expense deductions can be taken 100% for items which are clearly and only of a business nature. This includes travel expenses to out of town clubs (usually requires an overnight stay away from home to placate the IRS), 5" stilettos & 8" platform shoes & costumes which no 'housewife' would ever wear on the street, theatrical makeup, websites and cell phones used exclusively for promoting business etc. There is also an IRS letter ruling allowing a 100% business expense deduction for 'professional sized' breast implants i.e. larger than 1000cc (each).
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Re: What types of deductions can I claim when filing taxes?
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Originally Posted by buffie06
By claiming 450 instead of the 500 before housefee, aren't you cheating? Because 50 dollars of unreported income is more than the taxes on 50 dollars of reported income. Suppose 50*4days per week =200*40 weeks=8,000. So you are not reporting 8,000 in that instance.
You're not cheating; you could report that 8,000 and then immediately deduct it, which would, as Melonie says, offset it dollar for dollar. Your taxable income would be the same. In your estimate, say a dancer earned $2000 before housefees every week for a year (let's say 48 weeks) = $96,000 gross. Then she deducts the $50 housefee, which is 9600. Her taxable income then becomes $86,400. If she just reports the $450 she takes home after the house fee, her taxable income is, wait for it, $86,400. Now, I'm not entirely sure about the legal ground of this, to be sure, but the end result, the earnings that can be taxed, is the same.
My point was, of course, that you can't only report the net income you take home and then deduct the house fees again.
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Re: What types of deductions can I claim when filing taxes?
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Re: What types of deductions can I claim when filing taxes?
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Originally Posted by buffie06
that makes sense, thanks
Buffie, when you sign in at night as the manager that takes you money for the recipet. That way if you ever audited you can show proof of what your house fee's were.
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Re: What types of deductions can I claim when filing taxes?
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Originally Posted by forevernaked
Aside from house fees, when counting deductions, ask yourself: "Does this help my business?" Here's a laundry list of items I or dancers I know have deducted:
-hair products
-hair styling (cuts, color, extensions, etc)
-makeup
-plastic surgery
-tanning
-manicures & pedicures
-exercize equipment
-gym membership
-dance lessons
-travel expenses to out-of-area clubs (namely Vegas)
-computer & software
The deductions always confuse me, my CPA said things like plastic surgery & nails arn't deductions.
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Re: What types of deductions can I claim when filing taxes?
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The deductions always confuse me, my CPA said things like plastic surgery & nails arn't deductions.
By the letter of the law, plastic surgery (other than the 'professional sized' breast implants exception), nails, tanning, health club etc. fail the 'housewife test' and can therefore be disputed as legitimate business expense deductions by the IRS. On the other hand, another part of the IRS code allows deductions for 'ordinary and necessary' business expenses, and it is arguable that a boob job, tanning sessions, manicures etc. do indeed improve a dancer's income.
As I posted earlier, many girls attempt to claim 50% of these types of business expense deductions which fail the 'housewife test' ... on the premise that half of the benefit is personal, but the other half of the benefit is business related. The thinking is that if audited the IRS will have difficulty trying to disallow a 50% deduction in the face of a 'realistic argument' that part of the expense did in fact was of business benefit. Of course to hold up the dancer's end of the argument, her reported income needs to be higher AFTER she took these 50% deductions on items that fail the 'housewife test' than her reported income from the year before ... if there is no increase in reported income then it bolster's the IRS's position that those expenses were of purely personal benefit and should not be allowed.
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Re: What types of deductions can I claim when filing taxes?
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Re: What types of deductions can I claim when filing taxes?
Is it protocol to take a 50% deduction on items that fail the housewife test? I mean is it a legitimate thing recognized by the IRS?
Let's say I keep my receipts for tanning, nails, bikinis, thongs, shoe inserts, etc etc... add up the total amount of business expenses for these things,and come up with a number like $1,000. These are the things that fail the housewife test. So... do I then claim 50% ($500) as deductible? Then I add my items that are 100% deductible to that $500? It all seems really hokey. Is that an actual rule? A mere guideline? A dancer myth?
If it's a legit way of doing it, then I'm in. Does anyone know if the IRS actually recognizes this way of taking deductions?
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Re: What types of deductions can I claim when filing taxes?
I don't even try to deduct anything like that--massages or any kind of personal care. You could give it a shot, but really, is that $500 deduction really worth it?
But I would say that your thongs, since they certainly aren't normal underwear, and are marketed specifically to strippers for use at work, are deductible.
Also, remember that as a self-employed person, you are eligible to take car and home office deductions . . .
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Re: What types of deductions can I claim when filing taxes?
Quote:
So... do I then claim 50% ($500) as deductible? Then I add my items that are 100% deductible to that $500? It all seems really hokey. Is that an actual rule? A mere guideline? A dancer myth?
Again there are two conflicting IRS rules which apply. One rule basically says that anything that a 'housewife' would spend money on must be for purely personal benefit thus not deductible as a business expense at all. The other says that any business expenses which are 'ordinary and necessary' are 100% deductible. It really boils down to an auditor's 'judgement call' during an audit as to whether the first rule outweighs the second, the second outweighs the first, or they both apply equally.
If you want to play it 100% safe and keep your audit profile as low as it can possibly be, then obviously don't try to claim any deductions which fail the 'housewife test'. But the same principle applies to certain other deductions too like home office deductions and business use of your car deductions, which have an even higher audit profile because people in all sorts of different professions have abused these deductions.
In the final analysis, only a tiny percentage of tax returns which 'appear' to be plausible and professional actually get audited. In the final analysis not claiming legitimate deductions costs you money. In the final analysis, if you are audited and if deductions are disallowed the worst that will happen is that the IRS will seek a few extra tax dollars.
I CAN tell you that based on news reports and commentary from insiders that the IRS used to focus on the legitimacy of deductions in the past, but has now changed their prrorities. Rather than scrutinizing each and every deduction with a fine tooth comb, the IRS is now focusing their primary attention on attempting to identify/verify unreported and/or underreported income from cash businesses. Last year a major IRS effort was focused on cabdrivers, casino dealers etc. This year the IRS focus is likely to shift to similar cash businesses, with a fairly high probability that some of that attention will be directed at dancers (thanks a lot Scores girls blabbing to the national media that they earn thousands every night !).
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Re: What types of deductions can I claim when filing taxes?
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Originally Posted by Susan Wayward
Also, remember that as a self-employed person, you are eligible to take car and home office deductions . . .
This is NOT true for everyone! If you are an Independant Contractor, but work at the same club every night (or at only one club), this DOES NOT APPLY to you. If you are a feature dancer and constantly traveling around and do not have a club to call "home", then you can deduct the travel costs, but you cannot deduct mileage/wear/gas if you go to the same club every time you work. If you do not use your office for more than 50% of your "dancer" work, then you cannot deduct it. If you get audited, you will have to PROVE that you use your office more than 50% of the time for dancing related work (website, cam work, etc). But, getting online and emailing a customer is not enough to be able to deduct home office.
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Re: What types of deductions can I claim when filing taxes?
If we use the make-up artist and hair stylist at the club can we write it off and how do we do it?
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Re: What types of deductions can I claim when filing taxes?
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Originally Posted by Crissychan
If we use the make-up artist and hair stylist at the club can we write it off and how do we do it?
You would have to get a receipt from them and then they would have to file taxes on it. Or, you would have to 1099 them (get their full name, address, and soc sec #). Chances are, either way, you're not going to get what you need to deduct the cost. I am not sure how else you would be able to do it...it's kinda the "tipping DJ" problem. It's seen as a voluntary contribution/gift...but not deductible.