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Thread: escort needs help with paying taxes

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    Default escort needs help with paying taxes

    hello everyone, i'm in need of help with paying taxes. i would like to incorporate but i cannot seem to find anyone to help me!!!! i would like to incorporate so i can show proof of income!!!! so i can buy a house please help.... i contacted a cpa and he wanted 1,500 to start..... i feel he is trying to rip me off!!!! looking for someone whom helps women who work in the adult entertainment i work as a escort i have a website and i travel

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    God/dess montythegeek's Avatar
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    Default Re: escort needs help with paying taxes

    May be may not. Not enough info like what he would do and where.
    It may depend on the complexity of issues.
    1500/$100 per hour=15 hours 1500/75=20 hrs.
    One issue may expain it...you say you travel which means multiple state issues.
    You also say you called "a" CPA. He/she may be quoting high because they really are not suffering, may not normally deal in this area, or may be busy now. If you have a pre-established relationship with a lawyer--maybe they could give local ideas. In fact the issue of incorporation may mean a lawyer is involved a bit.
    Basically need more info

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    Banned Melonie's Avatar
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    Default Re: escort needs help with paying taxes

    Not to rain on any parades, but you might want to think twice about incorporating your escort business. The fact of you being in this line of work being brought to the official attention of your state government as the result of your incorporation filing might bring unwanted attention in your direction. You're actually better off filing for incorporation in a state which is nowhere near you! Also, certain state laws allow corporations to be owned and controlled by a single person (Nevada, Oregon, Maryland ? and of course DELAWARE), while other states require that more than one person be involved in the corporation ownership or operation. Unless you incorporate in one of the states which allows a single person to own all the shares of the corporation, plus allows the same person to also be corporation president, secretary, treasurer etc. your business is going to get much more complex than it is now!

    Also, be aware that a major component of the new Patriot Act is increased scrutiny by the FBI and other government agencies to be sure that businesses are not being used as a conduit for terrorist money laundering. Just yesterday Congress passed a new bill that would allow the FBI access to the financial records of any business based purely on the FBI's suspicions with no warrant required - i.e. WITHOUT probable cause having to be proved to a judge so that a warrant is issued allowing such a records search. I do not know what this new law might mean in terms of the level of investigation of new corporations versus existing businesses, but it certainly can't be good.

    You don't have to incorporate to show proof of income. either. All you have to do is declare your income on a personal tax return as a sole proprietor business (Schedule C), pay taxes on it, make gradual deposits into a bank or investment account, and when you're ready withdraw the money for the down payment on your house. If your objective is to "launder" past earnings which were not reported as income and not taxed, you're going to have just as big of a problem whether you're incorporated or not.

    There are also several websites that specialize in assisting people to incorporate. Actually, in your own situation my might actually be better off forming a Limited Liability Company or LLC. Check out , or many others will turn up in an internet search for 'Delaware Incorporation'. Again, forming a corporation or LLC is going to involve significant initial expense, more complex tax filings every year, and more government channels for potential investigation.

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    Featured Member scorpio's Avatar
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    Default Re: escort needs help with paying taxes

    Kenya, you do not need to verify income to buy a house. melonie brought up some good points, but if you really want to incorporate, you can go to Borders, buy a book on incorporating (there are many) they usually explain the different types, such as LLC, S, etc... then fill out the paperwork and sendd your $150 or so to your state and viola! you are incorporated! BTW, you obviously wouldnt want to incorporate "Kenyas Escort services, LLC" you can make up any name, like "Kenya Enterprises" and that is sufficiantly vague enough so that yopu can lump any other money you make under it, such as modeling, websites, etc. Next, buy turbo tax for $20. It will walk you step by step on how to file your taxes. You will want to write expenses off, and it will tell you what is legal and what is not. You do not need to spend alot of money to set up a business.

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    Veteran Member Brooklyn's Avatar
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    Default Re: escort needs help with paying taxes

    a corporation is not hard to start but i agree with melonie i would not incoroporate you self as an escort service....but i would pick a buisness less likely to draw that much attention because if you area corporation you pay less self employment taxes and corporations if you look at statistics do not get audit as much.if you consider opening a a corporation there are two types a S corp and a C corp and the diffrence in the two is that an s corp you only have to pay taxes once and in a c corp its like double jeopardy you get hit twice ....im not an accountant but im giving you the advice my lawyer and my accountant gave me... im in northcarolina and if your near by i can give you that numbers so if you like you can pm me and i will be glad to give you those numbers ...but also 1500 dollars is way to much my accountant charges 350 and my lawyer charges 700 to set up corporations and that includes everything HTH

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    Pamela
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    Default Re: escort needs help with paying taxes

    True why incorporate. Incorporations are great if someone sues you, etc. Why not talk with a small business attorney ? Sure it's not free, but i am sure you will get your money back working.

    Or call the small business admin.

    Pamela

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    Featured Member scorpio's Avatar
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    Default Re: escort needs help with paying taxes

    why incorporate, then you can write off your expenses, thats why. I am a DJ. I report a certain amount of income. Against that income, I write off my music, equipment, promotional supplies...basicall everything. I end up showing a loss, which means I dont have to pay very much in tax. In fact, I get money back. You can only write stuff off if you have a business. You can write off your clothing, makeup, shoes, etc. Imagine that!

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    God/dess montythegeek's Avatar
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    Default Re: escort needs help with paying taxes

    Scorpio, be careful of the IRS rules about it being declared a hobby if you lose money too consistently. This is to prevent the executives wive running a small business into the ground as a way to "invent" writeoffs. I am by no means saying you are doing this but just be careful about this trap.

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    Default Re: escort needs help with paying taxes

    Um, scorpio, we write all that stuff off on our schedule C's without being incorporated. Plus, my accountant says you have to show a certain amount of income or you'll either get audited OR your bussiness will be declared a hobby.



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    Featured Member scorpio's Avatar
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    Default Re: escort needs help with paying taxes

    I see what you are saying, but I have another full-time job. I also run several other projects under my corporation. I show income in my job, the other stuff I write off under the corporation.

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    Default Re: escort needs help with paying taxes

    thanks everyone!!! i decided to get a LLC

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    Banned Melonie's Avatar
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    Default Re: escort needs help with paying taxes

    great, Kenya ! Please let us know how the process goes for you and how being an LLC works out.

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    Featured Member scorpio's Avatar
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    Default Re: escort needs help with paying taxes

    Kenya, unless you have more than 2 partners, an LLC doesn't make sense. It is more expensive to file, too. For a one person operation, I would go with a S corp.

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    Veteran Member NVJosh's Avatar
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    Default Re:escort needs help with paying taxes

    My firm specializes in entity selection and formation, although we are mostly geared to Nevada corporations. If you are going to incorporate for more than just legal protection, C-Corporation is the way to go for a lot of reasons. There are so many advantages to being a C-Corporation that its not funny. Now, there are disadvantages, too, especially because an escort business may fall into the "personal services corporation" category. While "escort" sounds like "personal services", the IRS specifically lists what sort of business are personal services, and I know "escort" isn't on the list. However, there's no guarantee that would hold up to scrutiny.

    Someone mentioned that you shouldn't incorporate with "escort" as your business, and I agree. Something along the lines of "Stress Relief Solutions" might be good.

    If you formed yourself as a single member LLC, you can switch to corporate treatment in 2004 (C-Corporation or S-Corporation) by filing a form with the IRS. However, if that's your intent, its much easier to start out as a corporation.

    If you're not working with a CPA, you should be. If you don't have one, send me a message and I'll see if I can help you or if that's impractical, recommend a CPA in your area.

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    Banned Melonie's Avatar
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    Default Re:escort needs help with paying taxes

    Josh, please enlighten us as to why you feel that a dancer/escort forming a C corporation is so advantageous that it's worth the extra money and trouble to do the initial and annual filings versus simply filing schedule C as a sole proprietor business.

    From my own understanding, the primary advantage is that a "corporate veil" would offer protection from personal financial/legal responsibility. However, I fail to see where forming a C corporation offers any significant advantage to a dancer/escort, as she would still face personal legal charges if caught breaking state prostitution laws for example (with the existance of a C corporation possibly leading to additional charges against the corporation for promoting prostitution), and the chances of a customer suing a dancer/escort for "malpractice" or other personal damages is extremely remote (since the person bringing suit would have to publicly admit to using the services of the dancer/escort). The other acknowledged advantage of a C corporation has been the ability to obtain venture capital and/or bank financing for additional business investment, which really isn't an issue for a single person enterprise.

    Please enlighten us ...

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    Veteran Member NVJosh's Avatar
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    Default Re:escort needs help with paying taxes

    Melonie,

    The whole idea of incorporating is to turn otherwise non-deductible personal expenditures into deductible expenditures. There are a lot of ways this can be done through a corporation. I'll give three quick examples below, there are others. However, as I'm sure you can relate, I'm happy to give a "tease", but this is what I do for a living and in the long run I'd rather generate clients than give out lots of free advice.

    1. Dependent Care: Lets say our dancer/escort (and I'm by no means equating the two, just they have similar situations) has a child at home, and she has to put the child in daycare to be able to be able to work at her job. If not incorporated, the D/E can still (generally) take a dependent care credit on her 1040. However, this credit is limited to $2,400 of expenses per child to a maximum of $4,800 on a return (even if you had 10 children). If the D/E's income is over $28,000, the credit will be at 20%, or a maximum of $480 for 1 child or $960 for 2 or more children. However, the D/E must pay tax on the $2,400/$4,800 and if the D/E is in the 15% bracket, that's $360/$720, effectively reducing the credit to $120/$240.

    OTOH, if the dancer has a corporation, the corporation can set up a Dependent Care Assistance Program for its employees (i.e., the D/E). Under this plan, the employee can receive up to $5,000 of dependent care assistance tax-free. However, the corporation gets a deduction for the amount paid and there are no payroll taxes on this amount. To show the savings, I've put an example below. I'm assuming that the D/E has total income before deductions of $40,000, payroll taxes and self-employment taxes are both 12%, and there is one child who incurs $3,000 of dependent care expenses. Also, that the D/E does not itemize and that her deduction for personal exemptions and standard deduction total $10,000.

    If the dancer is operating on Schedule C, she is taxed on the $40,000 of income. Her self-employment tax is $4,800 on this amount. Her taxable income is only $30,000 (the $40,000 of income less the $10,000 of exemptions/standard deduction) which generates a tax of $4,500. That's a total tax of $9,300. However, on the $3,000 of dependent care expenses, the taxpayer does get a $480 credit (remember, only $2,400 of these expenses are eligible for the credit at 20%). That leaves a net tax of $8,820.

    If the dancer has a corporation, she now receives a salary of basicaly $33,000 and the corporation pays about $4,000 in payroll taxes. In addition, the corporation pays $3,000 into the Dependent Care Assistance Program which is not taxed to the D/E. The Corporation pays no tax, since all its income went out as salary, payroll taxes, or dependent care. The dancer now has taxable income of $23,000 ($33,000 salary less $10,000 of standard deduction/exemptions) which generates tax of $3,450. Now, the total taxes are the $4,000 of payroll taxes plus the $3,450 of income taxes for a total of $7,450. This is $1,370 cheaper than operating as a Schedule C...for the exact same expenses. And your accounting bill for the year is probably going to be less than that $1,370 if you've kept decent records.

    Now, that's using $3,000 of dependent care expenses. From what I understand (I don't have kids, so I'm going wiht secondhand info here), that would be cheap for a year's worth of day-care. Lets say the expenses for the year are $6,000. Well, the Schedule C picture doesn't change at all. However, the Corporation can now put $5,000 into the Dependent Care program. Now, with only $35,000 of income to distribute, this make's the D/E's salary only $31,250 with $3,750 of payroll taxes. The dancer's taxable income is $21,250, for a tax of $3,188. PLUS, on the $1,000 of child care expenses not covered by the employer's plan, the D/E can take a $200 credit (20% of $1,000). Now the D/E's total tax bill is $3,750 + $3,188 - $200, or $6,738, a savings of $2,082!

    Okay...that was the long example. Here's a couple of quickies.

    2: Hair, nails, clothes, makeup: Someone mentioned the housewife test and was 100% correct in that. However, lets say the corporation provides these services to its employees as a working condition fringe benefit. Basically, its employees cannot perform their assigned duties without these services. While I think you would have to include some personal use allowance in these items, you would also be able to deduct a lot of them as supplies.

    2a: Dancer outfits: A lot of dancer wear could also be called club wear (especially if the IRS was being aggressive) and would fail the housewife test. However, if the corporation provides "uniforms" for its employees, they are definitely deductible. Again, a personal expense is turned into a business expense. Now, if you go and wear your dancer outfits out to clubs and the like, you will do a wonderful job of blowing this deduction. Also, I wouldn't run thing like the sweats you wear to and from work in this category.

    3: That treadmill you use at home. Well, its a personal expense, right? Yes...if you're unincorporated. However, corporations receive a deduction for athletic facilities that are provided on the corporate premises for use by its employees and their spouses and children. Well, it would require dedicating a room to the athletic equipment (although that room could also be wear you hang your outfits, keep your business computer, have your business phone, etc. It just has to be business use) and all of the sudden the cost of that treadmill is deductible. Better yet, there's no income hit to the D/E.

    These examples are simplified, however the tax savings are evident, and they are just the tip of the iceberg. Are there more costs and complexities with operating as a corporation? Sure, no question. However, is it worth it to you to save several thousand dollars a year or more in taxes? That's a question each person has to answer for him/her-self.

    Hopefully that clarifies things. Sorry for the length of the post and I hope I wasn't too technical.

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    Veteran Member Brooklyn's Avatar
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    Default Re:escort needs help with paying taxes

    LLC have to pay more self employment taxes than a corporation be careful about that.....S corp is a better way to go you only pay one set of taxes on how much you pay yourself out of your company just becareful

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    Default Re:escort needs help with paying taxes

    Quote Originally Posted by Brooklyn link=board=6;threadid=3557;start=msg60105#msg60105 date=1073007077
    LLC have to pay more self employment taxes than a corporation be careful about that.....S corp is a better way to go you only pay one set of taxes on how much you pay yourself out of your company just becareful
    Actually, you pay less self-employment taxes on an LLC than a corporation. You also dont pay federal or state unemployment with an LLC. These are both additional costs with a corporation. Although the FICA/Medicare rate is 7.65% and the self-employment rate is an effective 13.9%, as an employee you have 7.65% withheld from your check and your employer (in this case, you again) also pays 7.65% for a total of 15.3%.

    For some people, an S-Corporation is the best way to go. For most, if they are willing to put in the extra record keeping, a C-Corporation may be better.

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    Default Re:escort needs help with paying taxes

    Another neat corporate advantage is employee awards, which are deductible to the employer and not includible in the employee's income if paid in the form of a prize (i.e., not cash or cash-equivalent). There are a bunch of restrictions on this, and the annual amount is not high ($1,600, I believe), however even if your corporation is only in the 15% bracket, that's $240 of cash you save over being an individual.

    For instance, let's say the award is designated as a safety award. At the end of the year, the corporation buys you a new $1,600 TV for your excellent safety record during the year (perhaps you never fell offstage ) The $1,600 cost is a deduction to the corporation (saving at least $240, as mentioned above) and you don't have to include the $1,600 in income.

    Neat little bene, eh?

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    Default Re:escort needs help with paying taxes

    [quote=Melonie ]
    and the chances of a customer suing a dancer/escort for "malpractice" or other personal damages is extremely remote
    That caught my eye. I'm twisting my brain to figure out what kind of malpractice a Dancer/escort could be sued for.... Could you just see someone in small claims court arguing..."Your honor, after going home and thinking about it, I realized the Dancer's lap dance was completely unerotic, I want my $20 back."

    I suspose if one was running an escort service, and the escort you sent out turned out a psychopath who accidently set aflame the clients car... but as a Solo... I can't think of any protection you would get incorporating.

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    Veteran Member Brooklyn's Avatar
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    Default Re:escort needs help with paying taxes

    Josh , are you an accountant? anyway the reason im asking is cause i just went through this with my corporate lawyer and accountant when i opened my corporation for my constructon business and hun i think you might be wrong .... i can assure you there is less self employment taxes in corporations than LLC.... where are you getting your info?

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    Veteran Member NVJosh's Avatar
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    Default Re:escort needs help with paying taxes

    Quote Originally Posted by Brooklyn link=board=6;threadid=3557;start=msg60357#msg60357 date=1073127244
    Josh , are you an accountant? anyway the reason im asking is cause i just went through this with my corporate lawyer and accountant when i opened my corporation for my constructon business and hun i think you might be wrong .... i can assure you there is less self employment taxes in corporations than LLC.... where are you getting your info?
    Brooklyn,

    I'm a CPA. Now, we may be comparing apples and oranges here. What they may have told you is that "from a corporation, you only pay FICA/Medicare on your salary, while from an LLC you pay S/E tax on everything, so there is less S/E tax with a corporation." If that's what they said, they are entirely correct. And re-reading your post, maybe that's what you were talking about in terms of splitting S-Corporation income between Salary and Distributions. However, given an equal amount of salary or LLC income ($10,000 for arguments sake), an LLC would have less S/E tax than a corporation for based on my original response.

    Also, I'm only considering federal issues. The state impact is different in every state, so it can mess up the equation.

    I work with lots of small businesses, and S-Corporations used to always be the way to go. Now, we're shifting back to C-Corporations in a lot of instances. Honestly, it depends on your particular circumstance and goals.

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    Veteran Member Brooklyn's Avatar
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    Default Re:escort needs help with paying taxes

    i agree with you josh it does differ for everyone thats why i said LLC might not work for everyone.different circumstances apply to everyone ...

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    Default Re:escort needs help with paying taxes

    As with many others in here, I also have to agree that incorporating may not
    be necessary.
    You don't have to be a business per se to write off
    expenses.
    Especially if you are a dancer as you are considered an
    independent contractor.
    As a DJ, you can still write it off provided you
    can show it went towards a work expense that was not a reimbursement.
    In
    addition, in many states you don't have to be incorporated or even own a
    business license to be in business.
    If you are the sole proprietor of your
    business (as most dancers are) you probably don't need to be a corporation to be
    able to handle your taxes properly or even get a home loan.
    Nowadays,
    non-verification of income loans are quite common providing your credit is in
    good shape.
    If you have good credit getting a home loan now is extremely
    simple.

    As for accountant fees, it's like anything...you have to shop around.

    If all you need is a good bookkeeper, then look for that.
    But hiring a CPA
    may be a bit of overkill for your needs.
    If you do need a CPA though, you
    are going to pay for their experience and degree in accounting which usually
    runs top dollar.
    It's like the difference between having a paralegal
    handle your business filings or having a full-fledged business attorney handle
    it.

    -Adam-

    www.dancerwealth.com

    The ORIGINAL Stripper Sales School
    -
    Things may come to those who wait, but only the things left by those who hustle. ~Abraham Lincoln

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    Default Re:escort needs help with paying taxes

    Adam's right. Not everyone needs to incorporate. For a lot of people its overkill. However, there are a lot of advantages (such as the dependent care program mentioned earlier) that are only available to corporations. If you're in that situation, and want to save extra taxes, and (perhaps most importantly) are willing to put in the extra effort it takes, incorporation is the way to go.

    I certainly would never recommend incorporating for legal protection purposes to a dancer, because you would still be liable for your personal acts, which sort of negates that corporate advantage. It might be slightly different for an escort, because the escort might have her own place of business, and the corporation might protect her if, for instance, someone tripped over a chair at her place of business and was injured. That's more of a legal issue, though, and if you're in that situation I'd consult a lawyer, not a CPA.

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