It appears that the tax people in both the US and Canada have figured out that 'entertainers' are a potentially ripe source of additional tax revenue ! In fact the IRS has received a special appropriation from the US congress to set up a new targeted enforcement unit for 'Adult Businesses' ... which under their definition also includes strip clubs and 'strippers'.I was told it was random...but then I found out later by the auditor that they were assessing a multitude of entertainers.
As Alena or myself or anybody else who has ever been audited can tell you, where a 'cash business' is concerned half of the battle is having operated your business in a 'professional' manner - which means keeping accurate books on all business activities, which means filing accurate and timely estimated taxes and tax returns etc. If the auditor sees from the state of your business books that you know what you're doing and that you're (relatively) accurate and complete with the entries made in those books, they are quite likely to accept the figures you have reported as being accurate and true numbers. At that point the auditor will work 'with' you in going over any details the auditor wishes to clarify.
However, if your business books are a mess (or there are no business books), and if many of the entries look questionable, then the auditor may begin to doubt the accuracy of any of the entries you have made. This lack of credibility will be compounded if you also were late in filing estimated taxes, late in filing tax returns, made major errors in your tax returns etc. If this happens, then the problem I spoke about earlier re not having any official income reports to prove how much money you DIDN'T earn can start to work against you big time.
If the auditor sees enough bizarre stuff in your business books to doubt the credibility of your entries, all of a sudden you become wide open to the auditor assuming that you are cheating on taxes re undeclared income, and may go into 'forensic accounting' mode ... i.e. attempting to piece together your total cash flow, and attempting to 'estimate' the amount of actual income that would be necessary to support that cash flow. At this point the 'impressions' of the auditor may also come into play, i.e. you're carrying a Coach purse, you drive a Corvette, your credit card shows shopping sprees at Bloomingdales / Tiffany etc.
If and when this happens, you may wind up with the auditor 'estimating' levels of income that are much higher than those you reported, and the auditor presenting bills for additional taxes due, as I posted about earlier. The auditor can also 'estimate' higher levels of actual earnings for at least three years (if you have been dancing for that long), meaning that if you are caught up in this situation the total bill for additional taxes plus penalties plus interest can potentially hit the $50k or even $100k ballpark ! And because you lack official documents ( forms W2 or 1099 in the USA ) to conclusively prove how much money you did and DIDN'T earn, because all of your dancing income numbers are essentially self-generated (meaning that technically you could invent any numbers that you chose to), and because the 'professionalism' thus credibility of your business books was brought into question, any attempt you make to try and mitigate this additional tax bill in court will essentially wind up being your word against the word of an auditor ...



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