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Thread: Quarterly Estimated Payments, Deductions, etc.

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    Default Quarterly Estimated Payments, Deductions, etc.

    I just had a very frustrating visit with an accountant, and I think he made things more confusing. If anyone can help, I would be super appreciative. Here are my "itemized" questions:

    1) I'm filing my Schedule C. He told me that filing as a sole proprietorship with no itemized deductions was a red flag, and that I should be deducting my clothes, makeup, etc. and claimed that the "housewife test" is "malarkey". I do not intend to listen to him on this point, since the consensus of SW is a big fat "don't do it". I cannot think of anything else to deduct that lies outside of the housewife test. Thoughts on this?

    2) Accountant says I "have" to file my gross (before house/tipouts) and report house/tipouts as deductions. I think that's what he was alluding to in the lack of itemized business deductions. The sticky thread in Dollar Den says don't do that due to the 1099 issue. When I pointed that out, he basically implied that I should be attempting to issue 1099s (yeah, never mind the logistics of asking a manager for his SSN...) Am I correct in just filing a net amount and not doing the deductions? I know Melonie says that's the most audit resistant method.

    3) One of our DJs deducts his mileage from home to work; I know that is considered commuting and not deductible. However, I've read on several sources that if going from a "home office" to work; like if I am filming clips or doing something for another business (i.e., writing ads for riding lessons or doing website maintenance), then going to the club, and then coming home to do my spreadsheets/paperwork/work-related emails, I can claim all the mileage as long as the office is a separate room in my house not used for other things. Yes, no, maybe?

    4) Quarterly taxes. What should I do in this scenario? This year, I owed nothing in income tax due to a hefty Lifetime Learning Credit. Next year I expect the same situation, I would guess maybe a few hundred if that. Bf and I are intending to get married and file jointly next year, and he has the American Opportunity credit, which is good for $2500 and is applicable to self-employment tax. He has a W-2 job and is generally owed a refund each year anyway. Would you divide up the standard deduction, personal exemptions, and credits all by 4, and calculate/pay the tax each quarter? The accountant told me I need to pay in 30% of my gross (before house fees/tipouts) and just take a refund at the end of the year... I don't see WHY I should need to do that if I am unlikely to owe that much, and I would rather not tie up liquid cash that way waiting to get it back in April.


    Thank you SO much in advance!
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    Default Re: Quarterly Estimated Payments, Deductions, etc.

    Quote Originally Posted by Selina M View Post
    I just had a very frustrating visit with an accountant, and I think he made things more confusing. If anyone can help, I would be super appreciative. Here are my "itemized" questions:

    1) I'm filing my Schedule C. He told me that filing as a sole proprietorship with no itemized deductions was a red flag, and that I should be deducting my clothes, makeup, etc. and claimed that the "housewife test" is "malarkey".
    Clothing is not deductible. Costumes are. Makeup is not deductible, theatrical makeup is. The "housewife test" is not the be all and end all when it comes to determining a deduction. The rule is ordinary and necessary business expenses. That is, if something helps your business and is not used outside your business you can deduct it. The "housewife test" comes in to help the Service try to separate things ordinary housewives buy from things that strippers, or personal trainers or dance coaches or track coaches buy. It's an aid, nothing more and nothing less. When I deducted items that might fall cross-wise of the housewife test, I documented their use in my business. Better, I bought costumes from a costume shop or the costume lady who would give me a receipt that said "costume" on it. Same with makeup. Of course, if you get audited, don't show up to the audit with body glitter on and in costume.

    I do not intend to listen to him on this point, since the consensus of SW is a big fat "don't do it". I cannot think of anything else to deduct that lies outside of the housewife test. Thoughts on this?
    I deducted thongs, especially the ones I sold. (Inventory) I deducted sequined just about everything. (Costumes) I deducted body glitter (Theatrical makeup) and lots of expensive makeup I bought at a costume shop. (Theatrical makeup) I deducted trips out of town to dance. (Travel) I deducted my "stripper phone." (Ordinary & Necessary) Of course, I had a separate phone and # for my personal communication.

    2) Accountant says I "have" to file my gross (before house/tipouts) and report house/tipouts as deductions. I think that's what he was alluding to in the lack of itemized business deductions. The sticky thread in Dollar Den says don't do that due to the 1099 issue. When I pointed that out, he basically implied that I should be attempting to issue 1099s (yeah, never mind the logistics of asking a manager for his SSN...) Am I correct in just filing a net amount and not doing the deductions? I know Melonie says that's the most audit resistant method.
    I would disagree with your accountant. I made nightly deposits in my business account. Those deposits constituted my record of gross income. Obviously, I had already made my tip-outs. I agree, it is impossible to comply with the 1099 rules on club payments. Thus, I use the deposits method. I assure you, there is case law to support using the deposits approach. It's the dominion rule.

    3) One of our DJs deducts his mileage from home to work; I know that is considered commuting and not deductible. However, I've read on several sources that if going from a "home office" to work; like if I am filming clips or doing something for another business (i.e., writing ads for riding lessons or doing website maintenance), then going to the club, and then coming home to do my spreadsheets/paperwork/work-related emails, I can claim all the mileage as long as the office is a separate room in my house not used for other things. Yes, no, maybe?
    I don't think that would survive audit.

    4) Quarterly taxes.... The accountant told me I need to pay in 30% of my gross (before house fees/tipouts) and just take a refund at the end of the year... I don't see WHY I should need to do that if I am unlikely to owe that much, and I would rather not tie up liquid cash that way waiting to get it back in April.
    If you do the estimates correctly, you won't owe much at the end of the year. Nor, will you be owed much of a refund. 30% is a budget target. Obviously each taxpayer's situation is different. That said, you are not yet married. Things can change.

    HTH
    Z

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    Default Re: Quarterly Estimated Payments, Deductions, etc.

    1) I actually had the same question! I went to the H&R Block this year to get my taxes done instead of my previous accountant and the woman I met told me I should keep my receipts for business expense deductions the next time I file my taxes because otherwise it looks sketchy, the government will wonder what type of business I work in... I told her I don't only use these products at work but also outside of work, she re-assured me it's okay to deduct these items even if I use them outside of work with how much I claim... Being an avid SW reader, I thought it was poor advice...

    I don't really buy any costumes these days or stripper heels, I already have enough. I only buy regular lingerie from Victoria's Secret or other brands that won't pass the housewife test. My makeup is from MAC and Sephora, not theatrical make-up... Is it really suspicious if I don't deduct any business expense? The H&R person only deducted the monthly fees I pay for public transportation for 2014 as a business expense, I am not even sure it's legitimate, my previous accountant deducted public transportation when I had a full-time vanilla job too but it was probably under another section...

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    Default Re: Quarterly Estimated Payments, Deductions, etc.

    ^ Stacey, that's exactly what mine was saying... Like, what type of business am I running? One without a bunch of overhead. I can think of lots of legit businesses that don't have hardly any expenses... babysitters, writers, anyone who teaches lessons in something. I figured the IRS would be happy to not sift through a bunch of deductions that may or may not be legit.


    Thank you SO much Zofia! This stuff is putting me in such a pissy mood. I thought having an accountant this year would maybe save me some money somewhere or at least reassure me I'd done everything correctly, instead he just confused me and made me feel like an idiot.

    For #1, this guy was telling me to write off literally EVERYTHING... like, I told him I buy makeup at Target and he said "do it, just keep the receipt". Same for hair and nails. That does not seem like it would fly and I'd rather not try it and get audited. He seems to think it is less of a flag to write all that stuff off than just claiming $200 in dancer wear (that has a receipt from DiscountStripper)... he thinks that's not "enough" of a deduction and is suspicious.

    I will do #2 according to the net rule, thanks for clarifying.

    #3 was weird bc I initially did not even think of deducting mileage (bc I assumed it was commuting), but the person who recommended this accountant to me, told me the accountant had written all his mileage off, from driving to his office from his house, because he does like I do with bookkeeping in his home office... I think the consensus was that being self-employed, it's easier to get away with it, so they might as well try.

    On the quarterlies... if I am understanding the IRS site correctly, there are no penalties for underpayment if I pay out via 2015 quarterlies 100% of the tax that was owed for 2014, correct? And then if there is additional owed when I balance everything for 2015, I can just pay the difference? Just in case I calculate things one way and then they end up working out another way, so I can be covered from penalties.
    Last edited by Selina M; 04-09-2015 at 07:31 PM.
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    Default Re: Quarterly Estimated Payments, Deductions, etc.

    Quote Originally Posted by xStacey View Post
    1) I actually had the same question! I went to the H&R Block this year to get my taxes done instead of my previous accountant and the woman I met told me I should keep my receipts for business expense deductions the next time I file my taxes because otherwise it looks sketchy, the government will wonder what type of business I work in...
    No, the government won't wonder. You will put the appropriate occupational code in and the Service has an excellent database about how much it costs to be an independent entertainer.

    Is it really suspicious if I don't deduct any business expense? The H&R person only deducted the monthly fees I pay for public transportation for 2014 as a business expense, I am not even sure it's legitimate, my previous accountant deducted public transportation when I had a full-time vanilla job too but it was probably under another section...
    With service businesses, it's not all that suspicious. The Service knows most of what we make is salary.

    Z

    PS, I think deducting your public transportation expense is pretty aggressive.

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    Default Re: Quarterly Estimated Payments, Deductions, etc.

    Quote Originally Posted by Selina M View Post
    Thank you SO much Zofia! This stuff is putting me in such a pissy mood. I thought having an accountant this year would maybe save me some money somewhere or at least reassure me I'd done everything correctly, instead he just confused me and made me feel like an idiot.
    You are most welcome.

    For #1, this guy was telling me to write off literally EVERYTHING... like, I told him I buy makeup at Target and he said "do it, just keep the receipt". Same for hair and nails. That does not seem like it would fly and I'd rather not try it and get audited. He seems to think it is less of a flag to write all that stuff off than just claiming $200 in dancer wear (that has a receipt from DiscountStripper)... he thinks that's not "enough" of a deduction and is suspicious.
    Well, he's taking a very aggressive position here. You work in a business that is heavily tipped. That's already an audit flag. Now, I always say "if you're not getting audited, you're paying too much taxes." However, some people don't want to fight it out with the Service every year. I take a far less aggressive stance on these boards because of that. And, when I was actively stripping, I was not as aggressive either. No audits. So, by my own rule, I probably paid too much.

    #3 was weird bc I initially did not even think of deducting mileage (bc I assumed it was commuting), but the person who recommended this accountant to me, told me the accountant had written all his mileage off, from driving to his office from his house, because he does like I do with bookkeeping in his home office... I think the consensus was that being self-employed, it's easier to get away with it, so they might as well try.
    I agree.

    On the quarterlies... if I am understanding the IRS site correctly, there are no penalties for underpayment if I pay out via 2015 quarterlies 100% of the tax that was owed for 2014, correct? And then if there is additional owed when I balance everything for 2015, I can just pay the difference? Just in case I calculate things one way and then they end up working out another way, so I can be covered from penalties.
    So long as you pay 2014's taxes by April 15, 2015, no problem. Quarterlies are not a substitute for an installment plan with the Service.

    Z

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    Default Re: Quarterly Estimated Payments, Deductions, etc.

    Quote Originally Posted by Zofia View Post
    No, the government won't wonder. You will put the appropriate occupational code in and the Service has an excellent database about how much it costs to be an independent entertainer.



    With service businesses, it's not all that suspicious. The Service knows most of what we make is salary.

    Z

    PS, I think deducting your public transportation expense is pretty aggressive.
    I am not sure if it's different elsewhere but where I live public transportation is deductible to encourage citizens to take the public transportation... My dad's accountant deducted the fees for me when I only had a vanilla job prior to dancing and my last accountant too, but not as a business expense.

    I brought in my medical bills, tuition fees, public transportation fees receipts to my last appointment at the H&R Block. It was really weird, at first the woman told me only my tuition fees expenses were deductible, not my medical bills (almost $3000) and public transportation fees. It would have been if I wasn't a business owner, then I told her the last accountant who did my taxes was able to deduct these expenses for me... She then tried it with her software, it worked and lowered the amount of taxes I have to pay for 2014... She then asked me if I had any business expenses receipts I said no so she decided to put public transportation as a business expense saying it would give me a larger credit than doing it the way my last accountant did...

    I feel so unknowledgeable about taxes. I really want to be more informed about how taxes and investments work. I think I will start reading once I am done with my finals... Do you have any books to suggest for a newbie? You seem so knowledgeable just like Melonie!

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    Default Re: Quarterly Estimated Payments, Deductions, etc.

    ^^^ I don't want to speak for Zofia, but she and I have both been involved in running different businesses and thus dealing with accountants and the IRS for lots of years. We also both have a number of 'acquaintances' who also run businesses or are involved in the banking / financial industry, thus we 'hear things' about their recent interactions with the IRS.

    There is sometimes a big difference between the 'letter of the law' of the IRS tax code, and the realities of IRS judges and auditors decisions. There is also sometimes a conflict in the 'letter of the law' between two different section of the IRS tax code ... with the classic example for our industry being the 'housewife test' versus 'ordinary and necessary business expenses'. this can result in potential 'inconsistencies' i.e. the same controversial deduction might wind up being treated differently by two different IRS auditors in two different audit situations.

    Thus the 'experience' factor can be a significant consideration for our industry. And that leads to an observation about the supposedly conflicting recommendations by different accountants, by 'big box store' tax prep workers, etc. While those accountants and tax prep workers may have their heads stuffed full of 'letter of the law' IRS tax code, if they don't regularly deal with a particular industry they may not be aware of the 'real world feedback' that stems from IRS auditor decisions during individual audits of members of our industry, IRS tax court 'letter rulings' involving particular members of our industry, etc.


    Now, I always say "if you're not getting audited, you're paying too much taxes." However, some people don't want to fight it out with the Service every year. I take a far less aggressive stance on these boards because of that. And, when I was actively stripping, I was not as aggressive either. No audits. So, by my own rule, I probably paid too much.
    With one exception, I pretty much followed the same school of thought as Zofia in this regard. It's an unfortunate fact that, where tipped workers in 'cash' industries are concerned, while there is no absolute way for the IRS to prove that a person actually earned a total of X amount of money, there is also no absolute way for the person to prove that they DIDN'T actually earn Y amount of money if the IRS decides to 'estimate' they really did. And it is a fact that 'fighting' with the IRS can be expensive ... to the point where being proven 'right' about a couple of thousand dollars worth of controversial deductions may actually cost more in additional attorney and accountant fees than the controversial deduction was actually 'worth' in terms of tax savings and personal time. So decisions to be aggressive or not in regard to potentially controversial tax deductions boils down to decisions comparing what might be gained with what might be lost. As a result, like Zofia I generally took a conservative approach towards claiming potentially controversial deductions, based on the premise that spending time and money on IRS audits was less 'productive' than saving that money and spending my time earning yet more money via my own business pursuits.

    The one exception for me was being very aggressive in regard to deducting costs associated with my 'professional sized' breast implants. Since this deduction was worth tens of thousands of dollars in tax savings over the years, I kept meticulous records and prepared myself from day one for an eventual appearance in tax court. Fortunately, I was able to make reference to the IRS tax court 'Chesty Love' letter ruling, as well as being able to show the auditor my meticulous financial records, and as a result never had to appear in tax court in regard to this particular deduction.

    I'll also point out that when it comes to 'surviving' IRS audits, besides the level of aggressiveness of potential deductions, another HUGE factor seems to be the degree of 'professionalism' which your business exhibits in regard to its finances, record-keeping and ( attempted ) tax compliance. Given the fact that we work in a 'cash' business, where a significant percentage of our incomes may have zero 3rd party documentation to support how much money we earned ( and/or did NOT earn ), a key factor which IRS auditors seem to consider is the 'credibility' of the self-generated financial records of the person / business being audited. Thus having a registered business ( or LLC / S-Corp ) cultivates more credibility than operating as an unregistered sole proprietor. Thus having a segregated business bank account cultivates more credibility than co-mingling business and personal finances in a single personal bank account. Thus making regular quarterly estimated tax payments cultivates more credibility than only filing an annual tax return which includes under-withholding penalty and interest charges.
    Last edited by Melonie; 04-10-2015 at 10:21 PM.

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    Default Re: Quarterly Estimated Payments, Deductions, etc.

    Quote Originally Posted by Melonie View Post
    ^^^ I don't want to speak for Zofia, but she and I have both been involved in running different businesses and thus dealing with accountants and the IRS for lots of years. We also both have a number of 'acquaintances' who also run businesses or are involved in the banking / financial industry, thus we 'hear things' about their recent interactions with the IRS.
    True that!

    The one exception for me was being very aggressive in regard to deducting costs associated with my 'professional sized' breast implants. Since this deduction was worth tens of thousands of dollars in tax savings over the years, I kept meticulous records and prepared myself from day one for an eventual appearance in tax court. Fortunately, I was able to make reference to the IRS tax court 'Chesty Love' letter ruling, as well as being able to show the auditor my meticulous financial records, and as a result never had to appear in tax court in regard to this particular deduction.
    We are in complete agreement on this item. With the Chesty Love letter, this is a perfectly defensible stance.

    I'll also point out that when it comes to 'surviving' IRS audits, besides the level of aggressiveness of potential deductions, another HUGE factor seems to be the degree of 'professionalism' which your business exhibits in regard to its finances, record-keeping and ( attempted ) tax compliance. Given the fact that we work in a 'cash' business, where a significant percentage of our incomes may have zero 3rd party documentation to support how much money we earned ( and/or did NOT earn ), a key factor which IRS auditors seem to consider is the 'credibility' of the self-generated financial records of the person / business being audited. Thus having a registered business ( or LLC / S-Corp ) cultivates more credibility than operating as an unregistered sole proprietor. Thus having a segregated business bank account cultivates more credibility than co-mingling business and personal finances in a single personal bank account. Thus making regular quarterly estimated tax payments cultivates more credibility than only filing an annual tax return which includes under-withholding penalty and interest charges.
    Exactly right! The more professional you are, the less likely you are to have trouble with the Service. That's whey both of us strongly recommend a separate business account. Regardless of what form your business takes.

    Z

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    Default Re: Quarterly Estimated Payments, Deductions, etc.

    Right. If I was running a retail business or something, I would be more aggressive... but alas, I am running a business with no tangible goods or inventory records, that the service is aware is almost entirely done in cash.
    Soooo, I am not going to deduct off all the 'questionable items'. I buy almost nothing in the way of clothing, use drugstore makeup, don't go to a gym/nail salon... it would be peanuts in the way of things I could write off. The thought of dealing with an auditor is NOT worth the maybe $60 in tax savings. I'm honestly very surprised how aggressive a lot of girls are that I've spoken to, trying to write off all this stuff. I hope none of them ever get into trouble over it.


    Quote Originally Posted by Zofia View Post


    So long as you pay 2014's taxes by April 15, 2015, no problem. Quarterlies are not a substitute for an installment plan with the Service.

    Z

    I will be paying in full for 2014 I was referring to my 2015 taxes, that would be due in full by April 2016. Given that my situation for filing 2015 taxes is likely to change with credits and whatnot (though I will still sock away 30% of my take-home just in case), I was going to just pay out in the quarterlies equal to what was owed for 2014. I just wanted to clarify that I was understanding correctly, that you can pay either 90% of the tax owed for 2015, or 100% of what was owed in 2014, to avoid an underpayment penalty.
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    Default Re: Quarterly Estimated Payments, Deductions, etc.

    it would be peanuts in the way of things I could write off. The thought of dealing with an auditor is NOT worth the maybe $60 in tax savings. I'm honestly very surprised how aggressive a lot of girls are that I've spoken to, trying to write off all this stuff
    Indeed !!! As I posted earlier, one needs to measure what might be gained versus what might be 'lost'. IMHO a few hundred dollars ( or less ) worth of questionable tax deductions is NOT worth the time and stomach acid of an IRS audit !!! And especially so in a 'cash' business environment where the IRS could potentially claim that the person earned tens of thousands more dollars than they actually did earn ( based on observed lifestyle during an audit ), while the person has no independent 3rd party documentation to prove that she didn't earn the additional money the IRS claims she did !!! This is an increasing risk factor for dancers, escorts, etc. who run afoul of the IRS which camgirls do not face ( since 100% of camgirl earnings are usually documented by 3rd parties via 1099-misc from webcam hosts and/or 1099-K from payment processors ).


    I was referring to my 2015 taxes, that would be due in full by April 2016
    Umm ... not exactly !!! If 2015 isn't your first year in business, from the official viewpoint of the IRS you actually owe the tax money due to them on every quarterly estimated tax filing deadline. Granted that if all of the tax money owed on 2015 income is paid by April 15th 2016 the IRS won't start any 'enforcement' actions. But the IRS will levee under-withholding penalty charges plus interest charges if the quarterly estimated tax payments were not paid by the quarterly deadlines.


    that you can pay either 90% of the tax owed for 2015, or 100% of what was owed in 2014, to avoid an underpayment penalty.
    Yes, those are the official IRS rules.
    Last edited by Melonie; 04-12-2015 at 05:24 PM.

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    Default Re: Quarterly Estimated Payments, Deductions, etc.

    Mileage:

    If, for instance your stripper heels or thongs are deductable, and you drive to a store to buy them, drive to the store on the way to work, and then the mileage is deductible. Amazing how many times you need to go to the store to decide what to buy, isn't it?

    Watch your percentages, I have a business vehicle, and never claim 100 percent of the mileage as business miles. I always ensure that I have enough personal miles on the vehicle to account for commuting

    It is more about what is normal for your business, if you claim no tips, for instance, it doesn't pass the laugh test.

    I have never heard the lack of deductions being an audit flag, lots of people are not good at doing their taxes, if they audit them, the gov't ends up owing them money, not a great plan.....

    The real point is not what is 'legal' but how to not get audited. If they audit you, they are going to find something

    This accountant is a fool. If you are not going to pay any taxes, why cheat, you could get audited, they find mistakes, and you get fined all the same. Free money for the gov't

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