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Thread: too late to do the right thing?

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    Default too late to do the right thing?

    Ladies, I've been dancing on and off for awhile, but the last three years or so, dancing full-time. I've never paid taxes on my income, but this year want to... well, do the right thing (as I want to begin investing, building credit, etc.)
    My question is, I've been at the same club for these three years, will the IRS think it's strange that my income has suddenly jumped several thousand dollars from year's past? I get a W-2 from my current club, which pays minimum wage, and takes taxes out, so in the two years prior, I've actually gotten a refund! (very minimal).
    Ah, what's a girl to do when she wants to play by the rules???!!! help! I don't want to be penalized for the past, is this avoidable? Anyone ever been in this situation, do you claim the increase gradually or just say "Must have been my new perfume, really popular"

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    God/dess Bridgette's Avatar
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    Default Re: too late to do the right thing?

    You just started selling lapdances

    Quote Originally Posted by pheno View Post
    When you lead a nontraditional life don't try to measure it with traditional milestones.

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    Banned Melonie's Avatar
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    Default Re: too late to do the right thing?

    Actually, if you work at a club which sends you a W2 form, this means that you are considered by the club to be an 'employee'. This also means that by law you are supposed to report all tip/other income from the club TO the club so that they can run it through the club's payroll system and include it on your W2. However, lots of clubs don't do this/don't allow this because, as an 'employer', the club would have to pay SSI tax, unemployment insurance premiums, workmen's comp premiums etc in proportion to the amount of tip/other income each dancer reports (i.e. if dancers correctly report their incomes it would cost the club a lot of extra money).

    This sort of payroll situation is essentially a 'house of cards' and puts dancers between a rock and a hard place. If one dancer approached the club to correctly report her tip/other income, odds are that the club will get very "nervous". If the dancer reports her tip/other income as independent business income, then by law this income would needed to have come from some source other than the club which issued her a W2. In the absence of business expense receipts, travel receipts etc. showing another source of income, this dancer's reported independent business income (which is in fact NOT independent) is likely to draw attention.

    If the IRS ever decides to audit this dancer, it's very probable that questions would be raised in regard to the club's payroll practices as well as the income reporting practices of other dancers who work at the same club but who do NOT report tip/other income. Ironically, if the subject ever does come up with the IRS, it is in fact THIS DANCER who has incorrectly reported her income - the club can simply claim that it was the dancer's responsibility to report tip/other income to them, the club can claim that this dancer did not in fact do this, and that therefore the club can claim that all fault lies with this dancer.

    I can't really recommend any good option which would allow you to report all of your 2004 income under your present circumstances. As you yourself point out, the option which is least likely to rock boats with the IRS is to report your 2004 taxes in the same manner as your 2003 and 2002 taxes - however this option also constitutes deliberate underreporting of income on your part.

    You're definitely not the only dancer working in a 'house of cards' though. You might want to check out for starters.

    .

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    Default Re: too late to do the right thing?

    Consult a tax advisor on the best way to handle your back taxes issue.

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    Banned Melonie's Avatar
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    Default Re: too late to do the right thing?

    Also, I would definitely NOT recommend raising this issue with management at your current club. As I said, if all of the dancers started reporting significant amounts of tip and private dance income to the club - as is the 'legal' way to do this where the club treats its dancers as employees - it's quite possible that for every dollar of additional income that each dancer reports the club would be required to pay out 7 cents in matching SSI tax, perhaps 10 cents in workmen's comp premiums, perhaps yet another 8 cents in unemployment/disability insurance etc.

    This stuff would add up to huge amounts of money in a hurry for the club - i.e. if there are 20 dancers with say $50k each in additional tip and private dance income the club would be looking at an additional $250,000 in annual SSI, comp and insurance expenses ! Needless to say, any dancer raising this issue and creating the possibility that the club would wind up losing $250k a year in current under the table income is going to be treated as if she has the black plague !!!

    In very basic terms, this "house of cards" setup only works because the club "lies" but ALL of the dancers "swear to it". If one dancer does attempt to stop "swearing to it" and tries to report her income properly through the club's payroll system, it puts the club and all of the other dancers at risk of being discovered. If one dancer instead tries to report her income "improperly" through other means, i.e. by reporting the income directly as the proceeds of a ficticious business, then the dancer herself is compounding the original problem of unreported income by essentially commiting a fraud against the IRS. I have no idea how any IRS enforcement efforts would go down if such a situation were uncovered during an audit, but it's a pretty sure bet that the IRS investigation wouldn't stop with just this dancer and that this dancer could at some point wind up being pressured to become a witness against the club and against fellow dancers.

    The only meaningful advice I could give you is to think about changing club to one where you are treated as an independent contractor.
    Last edited by Melonie; 01-10-2005 at 08:38 AM.

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    Veteran Member Gerina's Avatar
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    Default Re: too late to do the right thing?

    What is the IRS form 4070? I am an employee; and I've been reporting my tips to the club and sign a sheet each shift stating that I am keeping track of said money and it is in the correct amount. I thought I am to report tips to them then file from my W-2 by Apr. each year. Is there a form I am missing?

    As aside note I noticed this year they started withholding 32% of tips versus 25% for last year. Is this because they're assuming we'll fall into a higher tax bracket and if we don't we'll get a refund, or should I be suspicious (i.e. they're making me pay their 7% share and reporting it incorrectly)?
    ...and the day came, when the risk it took to remain closed in a bud became worse than the risk it took to blossom.

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    Veteran Member Gerina's Avatar
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    Default Re: too late to do the right thing?

    dancerlala - in my humble, slightly uninformed opinion, I don't see why you couldn't just start reporting as long as your report matches the clubs and there is no paper trail of your receiving more than you earned. The IRS can cause harm if they can prove you made more than you report, which is detrimental if in previous years you had money in the bank that you did not pay taxes on. They can bring up your records within 7 years if you're audited.
    ...and the day came, when the risk it took to remain closed in a bud became worse than the risk it took to blossom.

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    Banned Melonie's Avatar
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    Default Re: too late to do the right thing?

    I am an employee; and I've been reporting my tips to the club and sign a sheet each shift stating that I am keeping track of said money and it is in the correct amount. I thought I am to report tips to them then file from my W-2 by Apr. each year. Is there a form I am missing?
    This exactly what the tax law says you should be doing. There is no problem whatsoever if you earn $500 in tips one night and report that $500 in tips to the club on the form you sign, such that the club runs the $500 income through their payroll system. The problem arises when the club insists that you only report say $50 in tips that night so that only $50 is run through the club's payroll system and the other $450 winds up as undeclared, untaxed, 'under the table' earnings for you.

    The original poster stated that she was in this sort of situation and wanted to know how she could document the fact that her 'under the table' earnings actually existed in order to facilitate obtaining a mortgage for example. Unfortunately with all of the automatic reporting instituted by the IRS, in this day and age you simply cannot walk into a real estate office/bank/car dealer with $10 grand in cash and spend it without questions being asked at some level as to the official origin of that money. Since her club would not allow her to report the full amount of her tip earnings, she was looking for some alternate way to do it. Unfortunately, as an employee dancer, there isn't any truly legal way to do that.

    IRS form 4070 is merely an 'official' equavalent form to the one you are already signing to report your nightly tips to the club.

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    Default Re: too late to do the right thing?

    Melonie, and all, thank you for your responses, just had time to check this today. Melonie, you are right in your interpretation of my situation, I don't want to walk into somewhere with 10K cash, and I'm reluctant to put it in the bank if I don't claim it, but stuffing money in the cookie jar has it's own problems, as we all know.
    You are right, I work for one of the very few clubs in my area that is an "employee" club, therefore I'm not an independent contractor. Oddly enough, when looking at my paystub, it appears that my club actually automatically adds in an estimated tip ($3.00 per hour), for all dancers, which I assume they are then paying on (in the form of worker's comp. etc.) I have no idea how they arrived at the $3.00 per hour figure, but I can tell you, even on a God-awful shift I make, well, more than three dollars ;-)
    Anyway, they've been doing this for years, and when I've asked girls at my club how they file taxes, they all have different responses, but many insist they claim something above their paycheck (minimum wage, plus three dollars), however absolutely NO ONE fills out any form reporting tips to the club, not at the end of the night, and not at the end of the year, so these girls may simply be pretending they're claiming thier income for my benefit, who knows. Either way, I had never heard of a form where you claim your tips to an employer (but remember one in waitressesing, years ago), and yes, Melonie, you are right, if I were the girl to bring this up to my employer I'd be treated as the plague (if not worse). Changing clubs is not really an opiton for me as I have a good cache of regulars, it's in a good location for me, etc. etc. God, I honestly don't know what to do, other than find a savvy CPA re: back taxes, but tell me, wouldn't I still have this issue even if I had worked at another club for three years as an independent contractor? The issue I am having is my seemingly major jump in income from one year to the next, what difference does this make whether I work as an independent contractor vs employee?
    Melonie, by the way, I can't thank you enough for your advice here and in other posts, you are an inspiration, beautiful and smart as a whip, my God you must intimidate the fellas.

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    Default Re: too late to do the right thing?

    Quote Originally Posted by dancerlala
    what difference does this make whether I work as an independent contractor vs employee?
    If I am not mistaken; as an employee, the club is responsible for reporting tip money, paying taxes, etc. As an IC, YOU are the one responsible for paying those taxes...reporting any and all income...

    I honestly do not know why more clubs just don't let girls be IC's...

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    Banned Melonie's Avatar
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    Default Re: too late to do the right thing?

    but tell me, wouldn't I still have this issue even if I had worked at another club for three years as an independent contractor? The issue I am having is my seemingly major jump in income from one year to the next, what difference does this make whether I work as an independent contractor vs employee?
    Well, if the owner of the club which treats you as an employee was willing to allow you to report $500 a night in income instead of $50 a night in income, then when you went to deposit or spend that money you wouldn't have to be worring about being discovered underreporting your income by the IRS. Also, if/when you attempt to secure a mortgage or car loan, the finance company would see that you actually have a significant amount of official income based on your tax returns, rather than being a poor credit risk with a $250 a week "official income" and making them believe another $2250 a week in 'under the table' income. Unfortunately as an employee, you can't report more income beyond that which the club allows you to without A) breaking the law yourself i.e. reporting profits of a ficticious business, and/or B) risking an audit which could also affect the club and other dancers.

    As an independent contractor, it is strictly under your own control how much income you report. As an independent contractor, there is no info provided to the IRS as to where you are working - thus no potential adverse effects on any club or group of fellow dancers should you ever be audited.

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    Veteran Member Gerina's Avatar
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    Default Re: too late to do the right thing?

    Melonie, thanks so much for your input - your advice has made my transition to a dancing career less confusing Good luck, dancerlala, i hope you find a beneficial solution; keep us posted.
    ...and the day came, when the risk it took to remain closed in a bud became worse than the risk it took to blossom.

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