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Thread: Starting to pay taxes after 7 years of not.. dangerous?

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    Question Starting to pay taxes after 7 years of not.. dangerous?

    I know, I know... I have been one of those sneaky under the table dancers for the last 7 years. This year I'd like to change that, due to requesting money for school etc.

    I have always kept 90% of my money in cash in my closet. I have paid bills with money orders forever. I have a bank acct, but put very little into it. I don't have any credit cards and haven't opened any credit accts of any kind in three or four years.

    I guess what I am asking is, if I want to get ahead and get legit, am I going to get audited for the past 7 years? What are my potential repercussions, or will I be ok? Or would it be better to continue on as I am for the next 18 months (when I plan on quitting)?

    My SO is in finance and suggested a safety deposit box for my cash if I decide to stay under the radar saying it'd be safer than my closet. I'm seriously contemplating that because I am so damn scared of what may happen if I start reporting my income.

    Help?

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    Banned Melonie's Avatar
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    Default Re: Starting to pay taxes after 7 years of not.. dangerous?

    Per IRS 230 the best advice I can give you is to find a very good accountant right away.

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    God/dess verfolgung's Avatar
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    Default Re: Starting to pay taxes after 7 years of not.. dangerous?

    My ex went for a period of about 5 years between filing tax returns, but then she wanted to get her financial life back on track and to some day be able to buy a home.

    As Melonie said, you should go and find a good accountant who will help you to file your back taxes.

    IMHO, I don't think you really have to panic over it. Just be sure to claim enough income, less reasonable gifting, to justify the lifestyle you've been living.

    Aside from some back taxes and a few penalties you should be okay. Even when my ex got her bill it was about $5k in total for 5 years of back taxes, nothing huge. However, at the time she could not afford to pay it, and we still called the IRS hotline and got her a 6 month extension and then followed that up with a payment plan.

    Although it may seem intimidating, so long as you work with them, I've personally found them to be reasonible.

    Best of luck.
    If you can't win. Make the fellow in front of you break the record.


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    Default Re: Starting to pay taxes after 7 years of not.. dangerous?

    All I can add is seek a CPA who is also an IRS enrolled agent.

    You can file returns for the three previous tax years. Pay the tax and penalty. Expect an audit, especially if you made a lot.

    Good luck,

    XOXO
    Z

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    Default Re: Starting to pay taxes after 7 years of not.. dangerous?

    Under the radar' may just be in your mind. It's hard not to have your name on anything that is a 'big' purchase and impossible if it is a medical expense.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: Starting to pay taxes after 7 years of not.. dangerous?

    Above all, take Melonie's advice. The IRS just wants your money. Be honest, pay what you owe, and move on.

    That said, don't even bother lying- it doesn't work and it doesn't benefit you in the long run:
    1. It's pretty easy to figure out what your cash flows are from indirect means.
    2. Stashing your cash in a safe deposit box signals a clear intent to evade. What's your personal price per year for a visit to Club Fed?

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    Default Re: Starting to pay taxes after 7 years of not.. dangerous?

    Quote Originally Posted by threlayer View Post
    Under the radar' may just be in your mind. It's hard not to have your name on anything that is a 'big' purchase and impossible if it is a medical expense.
    Honestly, I paid my car off up front, and anything medical I pay off in cash. The only "big" things I have are my lease (who did not ask for income verification, but I do pay rent to every month under my name), and my utilities. I have no credit cards and live pretty simply. School I pay for with money orders and books I just pay in cash. Those are really my only expenses.

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    Default Re: Starting to pay taxes after 7 years of not.. dangerous?

    I guess the important question, or one of them is how old are you? Were you a filing taxpayer, earning and paying taxes on X dollars per year for how ever many years or are you 25 maybe 27 and maybe possibly can build some kind of case for being a "non working student" IE always, until the current lease anyway lived at home or with boyfriends or whatever who paid your bills, IE food, gave you the money for the car etc.

    If you never paid before and have always had little if any money flowing through your bank account and or credit cards, aside from the money orders and I don't know what kind of "searchable" records are kept on them and for how long you may be sucessful in "pretending" you didn't make a lot of that cash over the last seven years.

    Not a recommendation. Just stating that, hey, you might "luck out" on this deal!!

    BTW count yourself very lucky that you didn't get robbed and loose all that cash in your closet, either by a burglar that just stumbled across it or by someone that "knew to look for it" pissed off ex BF's,GF's, stripper or otherwise or someone that "they told"

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    Default Re: Starting to pay taxes after 7 years of not.. dangerous?

    I'm 26. I started dancing at 18 but took a year off after a few months to wait tables til I was almost 20.

    My ex whom I still live with has offered to vouch for me, saying he supported me. But I dont know. I'm still debating. I do know I want to get right by next quarter though, and start designating about 30% to go to taxes.

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    Default Re: Starting to pay taxes after 7 years of not.. dangerous?

    Honestly, I paid my car off up front, and anything medical I pay off in cash. The only "big" things I have are my lease (who did not ask for income verification, but I do pay rent to every month under my name), and my utilities. I have no credit cards and live pretty simply. School I pay for with money orders and books I just pay in cash.
    A couple of things to consider ...

    Even though you paid for your car up front, when the state motor vehicle agency registered the title the IRS was informed of the buyer's name and SS# - the price paid etc.

    Even though you paid for your tuition with money orders, when you were registered the college bursar's office informed the federal gov't and thus the IRS of the student's name and SS# - the amount of tuition paid etc.

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    Default Re: Starting to pay taxes after 7 years of not.. dangerous?

    the irs doesnt get that crazy. Usually what tips them off to an audit is if someone calls and tells on you, or the club where you work informs the irs that you have made such and such amount and all of asudden they dont get a return from you. They will start asking questions at that point in the form of an audit. and you better have proof of everything in the event of an audit. i would claim a generous amount of my income every year. You are entitled to many many writeoffs as an independent contractor anyway. You dont want to be at the receiving end of a federal investigation

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    Default Re: Starting to pay taxes after 7 years of not.. dangerous?

    ^^^ these days, the IRS receiving an automatic report from a state title agency that can't be matched up to a tax return is just as likely to send up an audit flag as the IRS receiving an automatic report from a club for misc. income, the IRS receiving an automatic report of a large cash transaction etc. The key factor is the automatic reporting which now takes place on the 'spending' side, where in the past the automatic reporting only took place in regard to income.

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    Default Re: Starting to pay taxes after 7 years of not.. dangerous?

    the irs can go back as far as they feel if they think you'll owe them money, but they usually won't worry about things past 5-7 years. key word of couse is 'usually'. but it is pretty unlikely you are earning dollars to set them off.

    a registered, LOCAL cpa can be honest with you about what to do. don't get an internet cpa or whatever-- get someone local and with a longstanding rep. they may not take your business long-term, but they will be honest during a short consult.

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    Default Re: Starting to pay taxes after 7 years of not.. dangerous?

    the irs can go back as far as they feel if they think you'll owe them money, but they usually won't worry about things past 5-7 years.
    In the case of the New York dancers who were 'red flagged' by the IRS when the NYS Dept of Motor Vehicles filed an automatic report of new car purchases, the IRS went back three years. However, the IRS also did not believe the 'second' figure for annual income ($100k - their real income) provided by the dancers any more than the 'first' figure ($60k) reported on their original tax returns. Based on local media reports, and based on their own 'estimates', the IRS came up with an 'estimated' figure of their own ($150k), and sent the dancers a back tax bill for the $90k per year reported income difference for the past three years - which amounted to a back tax bill for about $100,000 (on top of the $30k or so in taxes that the dancers had previously paid while claiming a $60k income level on the tax return they filed)!.

    Had the dancers just reported the $100k per year actual figure on their original tax returns, odds are that they would not have been red flagged, and thus their total tax liability would only have been about $75,000 over the same three years instead of the $130,000 that the IRS calculated based on their own income 'estimates'. Since the dancers were facing siezure of their cars and freezing of their other assets ... plus big accounting and legal costs ... if they attempted to dispute the IRS 'estimate' in tax court, they opted to go the settlement route. But the settlement amount was well above the $45,000 in back taxes they truly owed based on their actual incomes.

    This is the risk involved with trying to 'short change' the IRS when you lack documentary proof of income thus the only real 'books' showing your income are self-generated. Just as the IRS cannot prove your actual income level, YOU also cannot prove your actual income level either. And under current rules, the burden of proof lies with YOU not with the IRS. I would also add that being red flagged after not bothering to file tax returns at all creates a situation where the IRS and the tax court both view the person in question as a 'wilful tax evader'. As such, there is practically zero chance that such a person (as well as any self-generated financial records produced by such a person) will be given any credibility at all.

    In the real world, the odds of being red flagged are probably very low as long as the person never buys a car costing more than $10,000, never makes a cash purchase in excess of $3,000, never opens a bank / investment account with a balance over $10,000, never pays college tuition, never buys more than $1000 worth of money orders from the same place on the same day etc. However, as soon as the person does any of these things, automatic reports will be generated and IRS computers will start cross-searching.

    ~
    Last edited by Melonie; 04-25-2009 at 09:07 AM.

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