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Thread: Mandatory tip-out & taxes

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    Default Mandatory tip-out & taxes

    There's a mandatory tip-out at my club - at least $5 to security, $10 to dj, $10 to manager at the end of the night. Would this be tax-deductible at all, for services rendered? Or no?


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    Default Re: Mandatory tip-out & taxes

    yeah, i would think so, as long as its proven and they are doing everything "by the book". i work with girls who used that as a deduction

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    Default Re: Mandatory tip-out & taxes

    they are deductible as legitimate business expenses IF ...

    A. the dj, bouncer, etc. are NOT employees of the club but independent contractors,

    AND

    B. your business issues 1099's showing the total amount of annual dollars paid to each of these independent contractors at the end of the year as is now required by the new ObamaCare law ( with the form requiring the person's name, address, SS# etc. as well as the total annual payments made )


    If the dj, bouncer, etc. are in fact club employees ... as is the club manager, then any payments made by you to said club employees are considered to be 'voluntary gratuities' which are NOT deductible as a legitimate business expense.

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    Default Re: Mandatory tip-out & taxes

    i have a question..so if they are issuing us 1099s, they aren't paying us anything..in fact they are taking money out, so what exactly do they put in the earnings spot? since they arent paying us? is it blank, and we say tell the IRS what we earned? im just confused about that, since my club doesn't do any of the above

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    Default Re: Mandatory tip-out & taxes

    Quote Originally Posted by simone87 View Post
    i have a question..so if they are issuing us 1099s, they aren't paying us anything..in fact they are taking money out, so what exactly do they put in the earnings spot? since they arent paying us? is it blank, and we say tell the IRS what we earned? im just confused about that, since my club doesn't do any of the above
    In clubs with funny money or where they run credit cards (like for VIP/CR), the club is paying money out to you, which is what would go in the earnings spot.

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    Default Re: Mandatory tip-out & taxes

    ^ ahh ok gotcha. thanks!

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    Default Re: Mandatory tip-out & taxes

    ^^^ also, to be technically correct, any money that isn't directly paid to the dancer by the customer, but is indirectly paid to the dancer via the club, is supposed to be listed on 1099's. Thus if you are working in a club that charges a percentage of private dances, technically speaking every $20 customer payment to the club for a private dance counts as taxable income to the club, and the subsequent $15 or whatever that is paid out by the club to the dancer at the end of the night can / will be listed on a 1099 issued to the dancer ( thus allowing the club to subtract $15 in business expenses from their former $20 income thus allowing the club to only pay income tax on the $5 club 'cut' ). At the end of the year, if the club cannot show the 1099's issued to dancers as proof of their business expenses, the club may be forced to pay income tax on the entire $20 they received from the customer ( even though the club only kept $5 of that $20 ).

    So the key factor is whether or not dancers are directly accepting customer money as payment for private dances, versus customers paying the club first with the club subsequently paying out a portion of the customer money to dancers.

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    Default Re: Mandatory tip-out & taxes

    ohhh..wow that would blow, because at my club we do give out 5 dollars a dance. if that happens ill definitely be looking for a different club lol. but i think they are making us employees and paying 2 bucks an hour if anything..they never mentioned 1099s

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    Default Re: Mandatory tip-out & taxes

    Quote Originally Posted by Melonie View Post
    ^^^ also, to be technically correct, any money that isn't directly paid to the dancer by the customer, but is indirectly paid to the dancer via the club, is supposed to be listed on 1099's. Thus if you are working in a club that charges a percentage of private dances, technically speaking every $20 customer payment to the club for a private dance counts as taxable income to the club, and the subsequent $15 or whatever that is paid out by the club to the dancer at the end of the night can / will be listed on a 1099 issued to the dancer ( thus allowing the club to subtract $15 in business expenses from their former $20 income thus allowing the club to only pay income tax on the $5 club 'cut' ). At the end of the year, if the club cannot show the 1099's issued to dancers as proof of their business expenses, the club may be forced to pay income tax on the entire $20 they received from the customer ( even though the club only kept $5 of that $20 ).

    So the key factor is whether or not dancers are directly accepting customer money as payment for private dances, versus customers paying the club first with the club subsequently paying out a portion of the customer money to dancers.
    that's correct, but many clubs still track dances and report that income, even though the money doesnt pass thru the club first. its pretty common in ca (esp djv) to do 1099s like this-dancer cuts plus funny money. that being said ive never worked for a club that has been accurate on this and obv it doesnt include tips I get so its underreported. the only people who need to worry are the cr whores-the girls that basically wait around for someone to hook them up with an expensive room for high roller extras customers and dont bother doing dances and smaller vips/rooms. aka the girl that the club paid out $2000 but had to tip out $800 after cashing out to keep the relationship going with the manager/host.

    anyway, why make taxes more confusing for yourself? just dont include any money you tipped out in your total income.

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    Default Re: Mandatory tip-out & taxes

    ^^^ while 'netting out' of tipout payments has been common practice in the past ... i.e. only 'booking' the amount of money you actually walk out of the club with at the end of the night as your total income ... technically this is now illegal under the provisions of the new ObamaCare law's 1099 reporting section because it 'bypasses' the requirement that moneys paid by one business ( the independent contractor dancer ) to another business ( independent contractor DJ's, bouncers, etc) must be reported to the IRS via 1099 issuance. Technically speaking, failure to keep track of nightly payments to DJ's,bouncers etc.and subsequent failure to issue 1099's as required can result in an IRS fine. Also, technically speaking, failure to keep track of nightly payments to DJ's, bouncers etc. and failure to issue 1099's to DJ's, bouncers etc. next February potentially leaves the independent contractor dancer vulnerable to having to pay income taxes on money she originally earned but subsequently paid out to DJ's and bouncers as if she had actually been able to keep that money !

    Again, while Washington granted a 'waiver' so that small businesses were not required to comply with this ObamaCare 1099 reporting provision in 2012, to the best of my knowledge that 'waiver' was NOT extended to include 2013 money / earnings. I guess we'll all find out how likely it will be that this new requirement will actually be enforced / investigated by the IRS in February of 2014 when the 1099 deadline for 2013 payouts rolls around. My accountant has told me what the 'letter of the law' supposedly requires. However, the IRS does have some degree of freedom to issue their own 'interpretations' of the law as well as some discretion in regard to how much 'attention' they will pay to particular provisions. So there's really no way to tell what the 'real world' implications of the ObamaCare law's 1099 reporting provisions will actually wind up being until the 2014 1099 deadline arrives, the 2014 annual tax return deadline arrives, and the IRS then takes subsequent enforcement actions. But as my accountant pointed out, since 2013 moneys / recordkeeping are involved, and since we are already 1/3rd of the way through 2013, if the IRS does come down with major enforcement efforts next year, small businesses ( i.e. independent contractor dancers ) who have failed to keep the required payout records and failed to issue the required 1099's for 2013 payouts to other businesses ( i.e. independent contractor DJ's, bouncers, etc.) could be seriously 'screwed' if audited after their tax returns are filed in April of 2014.

    The best 'leading indicator' is probably the fact that Washington increased this year's IRS enforcement budget to allow for the hiring of approximately 16,000 additional auditors / investigators, which would just about double the present IRS enforcement staff levels !!! And the stated purpose for Washington's authorization of this increased IRS enforcement budget was to insure compliance with new ObamaCare related tax issues. Granted that a lot of those new ObamaCare related tax issues have nothing to do with 1099's ... in fact they deal with the required payment of new IRS penalty charges by uninsured Americans who fail to purchase health insurance coverage for themselves ( a provision which will probably cost a typical uninsured independent contractor dancer an extra $1-2,000 per year = 2.5% of total income above some minimum income level ) in future years. But it's also logical to assume that IRS auditors are not going to be wearing 'blinders' i.e. looking at only certain aspects of a tax return while ignoring other aspects ... and particularly so when those other aspects also involve a ( different ) provision of the new ObamaCare law i.e. recordkeeping and 1099 issuance for 'business to business' payments made during 2013.
    Last edited by Melonie; 04-22-2013 at 11:28 PM.

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