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Thread: yet another tax question

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    Veteran Member bloodydewdrop's Avatar
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    Default yet another tax question

    i hope i'm not being redundant with tax questions, but have decided to file this year (my "first" year dancing) due to my bank account. i calculated everything deposited into my checking and savings accounts, and the amount came to $32, 569.00. After subtracting the standard deduction for a single person, i then deducted the $2575.00 I payed for school this year. i'll ask the CPA about student loan deductions. i hope this is correct. then i deducted everything....gym membership, hotels i stayed at when traveling for "dancing", makeup, nail salon, school books, my hairdresser, and my new computer. i only deducted things that i had payed for with my debit card, and there is therefore a bank record of it. however, i don't have all the receipts from this....a few boxes of things were lost when i moved this summer. guess what was in one of those boxes? friggin financial info and some unreplacable photos and books!

    after all the deductions related to my profession, my gross income came to $20,750.33. Keeps me in the 15% bracket, and CT has like 4.5 state taxes. I didn't do the estimated last year, as it is my first recorded year dancing, but will do it before this april.

    i guess i'm wondering if the bank records are enough to deduct effectively. the charges made to my debit are obviously work related.

    another question.....i payed off some debt this year too....is that tax deductable? the amount

    sorry for all the questions....i plan on seeing a CPA before filing, but any info. i could get beforehand would be useful. thanks in advance to anyone who can help.

    the amount i plan to claim fits in with my lifestyle. i rent for 630 per month, and my car payment is 250 (bought a used 95 nissan sentra). i live simply.

    thanks again...i'll also get the turbotax to help before the CPA to save time and money.

    ~BDD

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    God/dess Emily's Avatar
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    Default Re:yet another tax question

    BE VERY, VERY CAREFUL! You are treading on thin ice with that plan. Your deductions will send off MAJOR red flags to cause an audit. You cannot legally deduct those expenses you incurred because they are not used SOLELY for work. The only thing that would be is travel expenses when you are actually working, and clothing and shoes that you only use for work. I'm sure there is makeup that you only use for work, but I don't really think you should go there since that's hard to prove and not that much of a difference. And I don't understand why school expenses would be a deduction since that's not related to work.

    First, you are only reporting when you put in the bank, but did you pay other bills with cash or money order? You don't have to answer that to us, but keep in mind that if you are paying bills with it and not reporting it, the IRS has ways of finding this out. And if they are auditing you (which they surely will if you try to take your deductions), you are in for a world of hurt.

    If you are going to see a CPA, don't bother with TurboTax. It will ask you to determine your own deductions for Schedule C, which you don't really understand. He can also help you with other things that you didn't mention (which I'm assuming you may not know about), which are penalties for not submitting quarterly estimates and self-employment tax.

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    Banned Melonie's Avatar
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    Default Re:yet another tax question

    Emily is correct. The IRS uses a "housewife test" to determine the legality of business expense deductions. Things like costumes and shoes would clearly be legal since a housewife would not use them. However, gym memberships, nail salon visits etc. clearly fall into the realm of something that a "housewife" would also spend money on, making them questionable business expense deductions at best. As far as deducting your computer as a business expense, you can only do this if you are actually earning money via the computer, i.e. webcam or website, and even then you can only deduct a certain percentage of the cost based on the ratio of personal to business use.

    Educational expenses fall into a special category, so I'm not sure that paying off student loans is deductible. The original tuition payment is deductible, but if it occurred last year (2002) and if you're making student loan payments this year (2003) I doubt you can take a 2003 deduction.

    You have enough questionable stuff going on that I'd HIGHLY recommend checking with a CPA before filing.

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    Veteran Member bloodydewdrop's Avatar
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    Default Re:yet another tax question

    Thank you VERY much Emily and Melonie for the heads up...the absolute last thing i want or need is an audit. i have been paying for some things with money orders, but nothing extreme. going to see a CPA this week and come up with some type of game plan.

    as for those deductions, dangitall! hehe...why do those housewives need to have gym memberships? i guess i was just looking for ways to squeak by or not even declare.

    but honestly, as others have said in similar threads, no one likes paying taxes. my spoiled brat is just coming out i suppose.

    again, thanks for the widsom. i need reality checks at times.

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    God/dess Emily's Avatar
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    Default Re:yet another tax question

    Well, if you were being slightly dishonest, you could pay for such items that you wanted to deduct with cash that you didn't put in the bank and doesn't have a paper trail....in the future.

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    Default Re:yet another tax question

    Without attempting to steer things in another direction, some of those things would be deductible via a corporation. For the most part, though, Emily and Melonie are correct, and I don't think most of those deductions would pass muster on an audit.

    There are a couple of other things, though.

    1. You didn't figure self-employment tax into your equation. Its 12.9% of your self-employment income (not your taxable income).
    2. You mentioned deducting what you paid for school. Your tuition is not in and of itself deductible. However, you may be eligible for the HOPE Credit or Lifetime Learning Credit. Your CPA can help you with this one.
    3. Limiting yourself to only the bank statement deductions is not necessary, as long as you're reasonable. For instance, lets say you know you put $200 of gas into your car from bank receipts. However, your car gets 25 miles per gallon, its a 25 mile round trip from the club (how convenient) and you worked 200 days last year. The average price of gas was $1.50/gallon last year. Well, its easy to show you would have used 200 gallons of gas to get back and forth to the club, and at $1.50/gallon that's $300 of gas. You can claim the entire $300 as a deduction. The Service must allow you a reasonable deduction. Now, if you attempted to claim $1,000 for gas under these assumptions, you would have little defense if the Service disallowed most of the deduction.
    4. I have no idea your cash situation, however you are still eligible to set up a retirement account (either IRA or SEP) for 2003. This will save you some taxes, however only 19.5 cents on the dollar, so you have to think long and hard about whether you want to be without that money for the next 40 years. Discuss it with your CPA.
    5. While you are in the 15% bracket, don't forget that the first $6,000 of taxable income is only taxed at 10%.
    6. Most of the CPA fees you pay next year will be deductible on next year's Schedule C.
    7. You mentioned paying estimates for 2004, which is good. Your safe harbor in 2004 is 100% of your 2003 taxes or 90% of your 2004 taxes (whichever is lower). So, even if your income increases significantly this year, you still only need to pay in estimates equal to your 2003 tax. Sure, you'll have more to pay next April 15, however why loan it to the government at 0% interest until then? This only applies to federal. I don't know the CT rules, so ask your CPA about them.
    8. Good luck!

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    God/dess GoldCoastGirl's Avatar
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    Default Re:yet another tax question

    How far reaching is your "housewife test" Melonie ? ???

    Can you give us a good list of "usual suspects" (as in items, services, etc that most dancers will purchase)... ??? ???

    For instance.. can someone claim Mens Shaving Foam which is used strictly for work purposes (and kept at work 24/7)... ???



    enter: E3167322D9 for your 10% discount

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    God/dess Emily's Avatar
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    Default Re:yet another tax question

    Quote Originally Posted by GoldCoastGirl link=board=6;threadid=5926;start=msg65368#msg65368 date=1074772182
    How far reaching is your "housewife test" Melonie ? ???

    Can you give us a good list of "usual suspects" (as in items, services, etc that most dancers will purchase)... ??? ???

    For instance.. can someone claim Mens Shaving Foam which is used strictly for work purposes (and kept at work 24/7)... ???

    Hey, it's not really her test, it's the IRS (and this is for the US, so it might be different in your country). I know what she'll say though. if it's something a regular housewife would buy, it doesn't count. Things that fall into this category would be makeup, hair products, salon visis, tanning, etc. Also what would fall into this would be cosmetic surgery UNLESS your boobs are super huge (1000ccs+).

    This is just my uneducated opinion here...don't draw attention to yourself on a tax return. Deducting a $1 can of shaving cream just isn't a big deal. The more deductions you take, the more likely you are going to get audited. If you are not reporting your entire income, this is especially dangerous (and if you aren't reporting all your income, you probably bought a lot of these things with unreported income, so really unnecessary to take the deduction since you didn't pay any tax on it!

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    God/dess Zofia's Avatar
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    Default Re:yet another tax question

    If you are not being audited you're paying too much in taxes.

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    God/dess Emily's Avatar
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    Default Re:yet another tax question

    That's a good point, Zofia, but if you are one of those dancers who under-reports her income, an audit is a scary thing!

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    Veteran Member bloodydewdrop's Avatar
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    Default Re:yet another tax question

    NVJ: thank you for all the details you stressed...these are things for me to consider before going to the CPA so I at least have my thoughts in order. grr..paying the self-employment tax is really going to suck.

    as for retirement funds, i think i'm going to wait on that. i'm only going to be dancing for another two years 'till i get my master's. maybe even less, so right now getting through school (which limits the amount of time i can spend dancing) and paying off undergrad debt are top priorities. but who knows, i might keep dancing for a few more years and then will apply your advice accordingly.

    thanks again everybody

  12. #12
    God/dess Emily's Avatar
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    Default Re:yet another tax question

    It's not a bad idea to start saving early. Compond interest is your best friend or your worst enemy

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    Veteran Member NVJosh's Avatar
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    Default Re:yet another tax question

    And student loan interest is deductible (depending on your income) so it's not costing you as much as the face value. Its a judgement call based on your comfort levels.

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    God/dess montythegeek's Avatar
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    Default Re:yet another tax question

    Quote Originally Posted by Zofia link=board=6;threadid=5926;start=msg65432#msg65432 date=1074796348
    If you are not being audited you're paying too much in taxes.
    I kind of disagree with this saying, eben if it is quite clever.
    It is the logical equivalent of saying if you aren't getting a speeding ticket you are driving too slow. Obeying the law is not overpaying your taxes. Taking a very questionable deduction because you did not get caught doing it the year before is not smart from a long term perspective.

    They do not have to catch you each year and have 7 years to catch it. A disallowed deduction in an audit 5 years from now also accumulates 5 years of penalties and interest and gets not one year's taxes audited but 7 years. I am not saying overpay, but it is dangerous to set yourself up for a penalty. Pay what you owe and can defend to the IRS and not a penny more. If it is borderline you need a damn good argument.

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    God/dess Emily's Avatar
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    Default Re:yet another tax question

    I thought it was they had three years to catch it, and only seven if you under-reported by over 25%.

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    Default Re:yet another tax question

    i thought that as long as we never had to clock in or clock out that you didnt have to file taxes and how is the irs going to know if we worked at the club or not???

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    Banned Melonie's Avatar
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    Default Re:yet another tax question

    karmel, that may have been true 10 years ago. But today the IRS has automatic "back door" reporting requirements in place with banks, investment houses, state governments, even major retailers. If you attempt to take some of that unreported income and buy a car with it, when the car's title is registered a report will be generated and sent to the IRS stating that a person with such and such a social security number just purchased a car worth $25,000. The IRS computers will then look up past tax returns for the same social security number to make sure there is enough reported income to cover the $25,000 you just spent. If no tax return shows up in the search, aaaooogah ! Same principle is true of buying a home, making any purchase over $10,000 (or much less in certain states), bank deposits and withdrawls, investment accounts, even buying over $1000 of money orders in one day.

    Basically, if you're going to fly "under the radar" on reporting income, you're dooming yourself to flying "under the same radar" in regard to spending any of the money in order to avoid being caught. And if you are eventually caught, wilful failure to file tax returns can bring criminal charges as well as hefty fines, penalties, and of course having to pay the taxes themselves.

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    God/dess Zofia's Avatar
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    Default Re:yet another tax question

    Karmel,

    The Internal Revenue Service announced an agreement last year with 40 state Departments of Revenue to begin program of information sharing and stepped up enforcement. This program is the result of several successful pilot projects from around the country. Those projects were aimed at trying to bring in more unreported income to the system. When I first started dancing in 1998 in Indianapolis, the IRS and the Indiana DOR had run an operation on bars, restaurants and strip clubs. They hit a number of dancers with notices of deficiency who never "clocked in". I now know that the law does not differentiate between how you earn your income. All "accessions to wealth that are clearly recognized" are subject to taxation at the federal level. The IRS is now rolling out a program with forty states to push hard to bring in lots of income that was previously not taxed.

    As Melonie correctly points out, the IRS has not been sleeping through the technological revolution. They have been putting in place the systems to ferret out income that simply did not exist even a few years ago. Further, the IRS convinced the Congress to add some very real enhancements to the Revenue Code in the USA Patriot Act passed right after September 11, 2001. While these are aimed at money laundering and tracking terrorist money, the same rules allow for much better detection of people who want to avoid reporting. I, for one, applaud the effort. It will mean a lower tax burden for me, and everyone who reports fairly her income.

    HTH
    Z

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    Default Re:yet another tax question

    ok well i did have like 3 other jobs this year can i not just file with what w2 forms i have and then next year file with be a stripper cause well no one ever told me to keep receits or anything as of showing my income and then show how i spend it. or will the irs know that i was a stripper this year even if i did work some where else. whats a girl todo??

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    Veteran Member NVJosh's Avatar
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    Default Re:yet another tax question

    I dunno...how about "be honest"?

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