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Thread: taxes

  1. #1
    Member snowflakebaby's Avatar
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    Default taxes

    Like probably many other girls, I'm experiencing a sudden realization that I've been doing things all wrong and now I don't know how to fix things. See I've been dancing three years w/o paying taxes. In January my dad's friend "the accountant", who drinks entirely too much, filed my 2003 taxes but just for the last 3 months of the year ( I started saving receipts in Sept 2003). He didn't mention estimated tax payments at all. He turned me into LLC status (supposedely better for me) He was pretty creative/aggressive and I paid nothing (makes me worry now). OK fast forward. I have sinced moved to Nevada. I bought a house in April (put down 12,500$). I have not estimated taxes for 2004 so I now realize I owe penalties. So am I in trouble? How can I get my self in order? I know I should get a CPA. Should I pay now for january-present? Will this give me an idea of what to estimate for these last 3 months of 2004? Am I on the right track?

  2. #2
    God/dess Emily's Avatar
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    Default Re: taxes

    Wow, yes, pay something now!

    If you bought a house, you are above the radar. You only need to pay estimated taxes for the first half of the year at this point.

    You sound like you have your sh*t together, so pay it so you don't lose everything!

    I'm sure there are others that know much more about this than me. I am not that good at dealing with penalties and back taxes owed, but I'm sure there are professionals that deal with just that.

  3. #3
    Veteran Member DJ_WuLf's Avatar
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    Default Re: taxes

    Estimated taxes are based on your PRIOR YEARS earnings. You DO NOT owe any penalty at this point for not paying Qtr 1 2 and 3 estimates YET. Theoreticaly you could have a major LOSS in the 4th qtr 2004 that would exempt all your previous 2004 income. Remember you are an LLC (Limited Liability Corporation) which makes you a business. A business can (and is expected to) have taxable losses in its first years of doing business.

    I believe your main concern is to "cover" the $12,500 you put down on the house ..... right?
    That amount is already reported to the IRS (at closing as well as when you withdrew it from the bank or got a cashiers ck in that amount) so your BUSINESS needs to show that amount of income plus living expenses but as a business remember that you CAN earn ALL your money on the last day of the year.

    Don't sweat it too much and see an accountant who is used to dealing with entertainment income (which should be easy in Vegas).
    14 years working in Strip Clubs. "What a long strange trip it's been"

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    God/dess VenusGoddess's Avatar
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    Default Re: taxes

    The only thing I would be concerned about is accounting fully for the 3 years prior. Unless her accountant did that already...she would have to pay penalties for the 2 1/2 years that was never filed/paid.

    Wait to see if Melonie or Monty write.

  5. #5
    God/dess montythegeek's Avatar
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    Default Re: taxes

    I would go to a real accountant ASAP.
    You will need to pay the taxes for 2004-to-date at minimum. Emily is right that the home purchase put you on radar. DJ is semi-right about the estimated taxes in the sense that there is a safe-harbor provision but that safe harbor may have sunk as you said you did not have to pay anything.

    "The accountant" may have made things more complicated and you need a real accountant who can help to clean this all up. A pro is needed to navigate between what you need to do and what has already been done.

    Talk to the accountant about the right way to mitigate the damage. You could pay some of it asap and reduce any applicable penalties, if they will happen. Talk to the accountant about prior years too and the home purchase. If the pro finds mistakes were made he can file an amended return. Lots of people file amended returns because mistakes were found later (even John Kerry this year).

  6. #6
    Banned Melonie's Avatar
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    Default Re: taxes

    I agree with Monty that this situation could get very messy. The first question is of course who holds the deed/title to the house, you personally or the LLC ? Registering the real estate deed/title transfer definitely launched you above the radar, and undoubtedly an IRS computer is already cross-checking to see if the person/business who just ponied up $12,500 in cash plus assumed monthly mortgage payments of $ ??? had reported sufficient income to match this level of expenditure. I also agree with Geek that you should either retain a new accountant or at the very least have a heart to heart talk with the accountant that set you up as an LLC in the first place, as the odds of your being audited have just increased 100 fold versus some anonymous dancer who had never filed a tax return but who also had never made a big ticket purchase requiring gov't registration of the transaction.

    The big problem here is the fact that in the eyes of the IRS you have only been in business for about a year at this point. In the eyes of the IRS, within that same year you have apparently earned enough money to pay for normal costs of living plus save up the $12,500 down payment, plus committing to making X dollars per month mortgage payments for the forseeable future (on top of any other bank deposits, car payments or other recorded transactions you have made this year). Thus if your 2004 tax return does indeed show enough gross income to cover this expenditure record, say $75,000 - $100,000, then the IRS computers will probably drop their suspicions.

    However, reporting that sort of income also means that you'll owe the IRS a check for some $20,000 to $25,000 in 2004 federal taxes when you file your 2004 tax return. As DJ pointed out, there is a "first year" exception to the estimated tax law which MAY allow you to avoid being hit with estimated tax penalties. However, that "first year" exception won't help you into 2005, so plan on having to send an estimated tax check to the IRS on April 15th for about $5,000-$6,000 to cover taxes on first quarter 2005 earnings, in addition to the $20,000 to $25,000 you will owe for taxes on 2004 earnings. Then you'll need to be prepared to send the IRS another $5,000-$6,000 check for estimated tax liability on June 15th, September 15th, and January 15th 2006. When your file your 2005 tax return in April 2006, you will only owe them the $5,000-$6,000 quarterly amount of taxes, not FIVE quarters worth of income taxes all at once as you will wind up owing in April 2005.
    If there's any consolation, it's the fact that by moving to Nevada you don't have to go through the same stuff paying estimated income taxes to the state (as Nevada does not have a state income tax).

    Now if you won't have $25,000-$30,000 on hand to send to the IRS next April 15th to cover your tax liability on a reported $75,000-$100,000 gross income, you've got problems ! You could obviously (and illegally) choose to report a lower gross income, thus owe less in income taxes. However, reporting say a $50,000 gross income thus only owing $15,000 or so in federal taxes is very likely to raise eyebrows at the IRS. After all, if a person only earned $35,000 total after taxes on a $50,000 reported gross income, plus spending say $24,000 (= $2000 a month) on rent, utilities, car payments, etc. it would have taken virtually every single additional dollar to save up for the down payment on the house. If audited, you're going to have an extremely hard time explaining where the down payment money came from ! This will be particularly the case if there are bank deposit and withdrawl records going back prior to the time your business "officially" started earning money.

    The IRS can also easily backtrack and audit your finances for the last 3 years. Thus if there are bank deposit and withdrawl records indicating a regular influx of cash over the past 3 year period, it's highly likely that the IRS could come after you with "tax evasion" charges. Even without criminal charges, the IRS could come after you with civil charges ... claiming that you owe them for three years worth of taxes on a $50,000 annual income for each of those three years. Thus you might potentially be facing a tax bill of $45,000 in back income taxes on three years worth of income plus perhaps another $15,000 in penalties and interest !

    There are several other posts on this BBS which discuss in detail the ability of the IRS to now use automatic financial transaction reporting to "prove" the existance of undeclared income via records of expenditures being made without matching tax returns (and taxes paid) to explain where the money to make those expenditures came from. State real estate deed transfer registrations and state motor vehicle title registrations are the IRS's two biggest sources of such information.
    Last edited by Melonie; 10-10-2004 at 11:55 AM.

  7. #7
    Member Jon_CPA's Avatar
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    Default Re: taxes

    THE GOOD, THE BAD, and THE UGLY.



    Good first. I assume that you have not received a notification letter from the IRS. If the IRS has not already begun an investigation, and you have your tax accountant notify them of the situation then you start to minimize the risk of them trying to prosecute you for tax evasion. Once the amount you owe is determined there are forms that can be filed to request a hardship payment plan on the amount you owe. The hardship plans will protect your assets from seizure if you make the payments in accordance with the terms of the plan. The Nevada Society of CPAs should be able to help you in finding a reputable CPA in your area. www.nevadacpa.org



    The Bad. The safe harbor rule for using the prior year tax liability for quarterly estimated payments, is only applicable if you were in business for the prior 12 month period. If your dad’s “friend” has the LLC listed as being in business since January 1, 2003 then you are subject to the underpayment penalties for failing to make quarterly estimated payments in 2004. You are still responsible for the taxes on your prior three years of unreported income. You are also subject to interest on the tax liability, along with failure to file, and failure to pay penalties. Hopefully the CPA you pick will be able to convince the IRS to abate some of those penalty amounts.



    The Ugly. Under new laws the IRS is not limited to looking at the last three years. If the IRS is seeking to prosecute for tax evasion they can go back as far as seven years. If they are prosecuting for fraud there is no statute of limitations. If your father’s “friend” filed a 1065 and marked the box for LLC and did not register the LLC with the state of incorporation’s secretary of state, then you are subject to filing a frivolous or fraudulent return for 2003. Hopefully your father’s “friend” signed on the paid prepares line of the tax return otherwise he has left you to hang on your own.



    The States. If the states in which you were working and not reporting income had income taxes, you are still subject to criminal and civil prosecution under those state laws. Yes, the IRS does notify the states when you amend a return or are audited.



    Best of luck.

  8. #8
    Veteran Member DJ_WuLf's Avatar
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    Default Re: taxes

    Well Jon .....thats certainly the RIGHT way of doing it. Kind of like paying sticker price is the RIGHT way to buy a new car. Does anybody DO that? SHE HAS NO PENALTY DUE AT THIS POINT. Stop scaring the natives dude. As far as we know her paper trail begins in Sept. 2003 with ZERO Tax liability for year 2003 and is around $13K for tax year 2004. Somewhere in between your paranoia and my creativity lies the actual amount due but lets NOT Assume she HAD unreported income for 1999 - 2002.
    14 years working in Strip Clubs. "What a long strange trip it's been"

  9. #9
    Member Jon_CPA's Avatar
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    Default Re: taxes

    Quote Originally Posted by DJ_WuLf
    Well Jon .....thats certainly the RIGHT way of doing it. Kind of like paying sticker price is the RIGHT way to buy a new car. Does anybody DO that?
    DJ_WuLF by the tone of your statement it appears that you disagree with my assesment of her situation. You are intitled to your opinion. I have developed my opinion on the matter based up having worked with clients in similar positions. The less antagonistic and evasive that you are with the IRS the greater your chances are of getting your penalties, and the interest on the penalites, abated. Those amounts, on rare occasions, can be more than the tax liabilty and interest.

    Quote Originally Posted by DJ_WuLf
    SHE HAS NO PENALTY DUE AT THIS POINT. Stop scaring the natives dude. As far as we know her paper trail begins in Sept. 2003 with ZERO Tax liability for year 2003 and is around $13K for tax year 2004.
    The fact that a penalty is not yet due, does not mean the abscence of a penalty. Her tax return for 2003 only claims that her tax liability is zero, untill she files her 2007 tax return or the IRS issues an accepted or resolved audit report on 2003, it is just a claim. I'm not sure how you derived the $13K for 2004.

    As for her paper trail beginning in Sept 2003 that is not a hindrance to an IRS audit, but it is to the defense against the audit. The IRS has a number of methods that they are allowed to use to compute income, and they will dissallow any deduction that the taxpayer cannot support. In an audit the burden of proof is not on the IRS that they are right, but on the taxpayer to prove that the IRS is wrong.

    Quote Originally Posted by DJ_WuLf
    Somewhere in between your paranoia and my creativity lies the actual amount due but lets NOT Assume she HAD unreported income for 1999 - 2002.

    It's not paranoia, its professional experience. Creativity applied to structuring a transaction before it occurs is called tax avoidance. There is a thin line between applying creativity to a transaction after it has occured and tax evasion.

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