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Thread: short tax question, please help!

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    Exclamation short tax question, please help!

    I just started stripping about a month ago. The club's been pretty slow lately, so I haven't made more than $1500, including tips, which probably make up about 30-40% of that money. I've been trying to understand how to figure out taxes, but I get so confused! When I do my taxes, I don't include the tips I have made, right? Have I even made enough money to worry about sending in taxes by June 15? If I just let it slide this one quarter, will I be in trouble? I'm scared haha

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    Default Re: short tax question, please help!

    When I do my taxes, I don't include the tips I have made, right?
    First question is whether or not you are considered to be an 'employee' or an 'independent contractor' by the club you are working at. If the club gives you a weekly paycheck with taxes withheld for the hours that you have worked (even if this only amounts to $3 an hour) then you are an employee. If the club does not give you a weekly paycheck with taxes withheld then you are considered an 'independent contractor'. In 95% of cases, dancers will not receive a paycheck from the club, and are thus considered to be independent contractor self-employed business operators rather than 'employees'.

    Assuming you are an independent contractor, in general you owe taxes on net business income. Net business income consists of 'receipts', such as tip income received directly from club customers plus payouts from the club for private dances and/or VIP / Champagne room 'sales commissions' ... minus 'business expenses', such as stage fees paid, tipouts paid, costume purchases, etc.

    By the letter of the IRS code, anyone who earns more than $700 in one year must file a tax return. You are already over that limit. So yes you do need to pay estimated taxes. Based on what you have stated, you earned $1500 in the second quarter therefore you should make an estimated tax payment by June 15th. Since tip income counts towards net business income, your second quarter net business income will be $1500 minus anything you spent for stage fees, tipouts, costumes etc. For the sake of argument say that your expenses totaled $300, giving you a second quarter net business income of $1200.

    On an annualized basis, this would work out to something like an average of $300 per week given that you have been dancing for four weeks. Projecting forward, you will probably work 36 weeks for the balance of 2008, which would result in an annualized net business income of about $11,000.

    Now there's good news and there's bad news. The good news is that, at an $11,000 annualized level of earnings, the published federal income tax rate that will apply will be in the 10% ballpark. With exemptions and other deductions, the effective federal income tax rate will probably only be 6%, maybe even less.

    But the bad news is that the Social Security tax you owe (actually called self-employment tax since it consists of both the 'employer's' and 'employee's' share of ordinary Social Security tax) will be 12.4% Social Security + 2.9% Medicare = 15.3% ... and this percentage applies to any amount of income earned, high or low.

    Therefore in terms of a wild guess, your June 15th estimated tax payment to the IRS would be in the ballpark of $1200 net business income * (6% + 15.3%) = $252 . You didn't mention whether or not you live in a state that also assesses an income tax. I know that in my home city of New York a person with $11000 in annualized income would actually owe about a 2% state estimated income tax payment.

    There's no reason to be 'scared' about being right on the money with estimated tax payments during your business' first year of operation. The IRS will not assess penalties in regard to estimated tax payments because they understand it is hard to predict where net business income for a brand new business will actually settle out. However, if you get into the habit of making guesstimated estimated tax payments right from the beginning, you will avoid the nasty surprise that many dancers get slapped with next April 15th when you find you owe the IRS several thousands of dollars all at once (versus already having made estimated tax payments which cover most of that tax bill).

    ~
    Last edited by Melonie; 05-29-2008 at 12:59 PM.

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