Results 1 to 6 of 6

Thread: Have not paid quarterly ? on ramifications?

  1. #1
    Curious Guest
    Joined
    Mar 2005
    Posts
    1
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Default Have not paid quarterly ? on ramifications?

    I have a question. My wife started dancing last July and in preperation for doing my taxes this year have read quite a bit on this site. I also have been working for my self for 2 years now and for 2003 had H&R do my taxes. And I have a question. BTW live in FL no state income taxes.

    Niether my wife nor I have paid estimated quarterly taxes. I did not even know about them until tonight. I never had the money or the time to consult a CPA. H&R never mentioned it during the 2003 tax return. I assumed that you just reported your income at the end of the year and paid your taxes and went on your merry way...

    1. Since I have not paid quarterly estimated taxes does this raise the chance of an audit?

    2. Do I have to pay more at the end of the year (penaties or such) for not paying taxes quarterly?

    3. I want to do things right, how should I go about starting to do things the right way now. Please note that paying large bill before June is not going to be possible. Wife is having BA surgery 4/1 and taking 1 month off.

    4. I don't want to put my wifes profession as a stripper on a tax return. To claim deductions on house fee's milage etc. what "Title" should she use?

    5. Does the IRS automatically assume that Dancers Lie on thier tax returns? I was thinking that we should set aside a certain % of her income in cash to pay the IRS if they should aduit. Sort of "You reported 40k but we think you made more so here is your bill.." And having the cash to just pay it. Or am I too paranoid? We want to be legit as we are trying to pay off debts and put money down for a house.

    Thanks for any advice. It is nice to see the girls on here with a good head on her shoulders. Most of the girls my wife works with simply don't. So kuddo's to ya'll.

    -Dancers Hubby

  2. #2
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Have not paid quarterly ? on ramifications?

    1. Since I have not paid quarterly estimated taxes does this raise the chance of an audit?
    statistically speaking, yes it probably does. Since your tax return will include your wife's Schedule C business income declaration, and will also include a blank line in regard to estimated tax payments made, it's very probable that the IRS computer will hiccup. However, there is a 'first year' loophole in this regard.

    2. Do I have to pay more at the end of the year (penaties or such) for not paying taxes quarterly?
    Because of the 'first year' loophole, this year you probably won't. However in future years count on it. The IRS will charge you interest on the estimated tax money you 'borrowed' from them in April, June, September and December by not paying the amount due on those dates, plus the IRS will tack on a (usually) 10% penalty.

    3. I want to do things right, how should I go about starting to do things the right way now. Please note that paying large bill before June is not going to be possible. Wife is having BA surgery 4/1 and taking 1 month off.
    Estimated taxes for business earnings on income from the 1/1/05 to 4/1/05 period are due on April 15th 2005. There is a provision on the 1040 tax return form to apply part of any 2004 refund due towards first quarter 05 estimated taxes, or to 'pay in' extra tax money along with filing your return to be applied to first quarter 05 estimated taxes.

    You may be able to avoid paying this if, during your wife's BA, she is getting implants larger than 1000cc. If so, then the implants are deductible as a business expense, and the cost of the BA can be written off against her business income dollar for dollar thus reducing the estimated tax payment due. If however the implants she's getting are in the 'housewife' range i.e. less than 800cc, then this is a non-deductible item.

    Missing the April 15th estimated tax payment isn't the end of the world as long as you're prepared to 'make up' for it with the second quarter payment due June 15th. As long as the total amount of estimated taxes paid in by June 15th is sufficient to cover the taxes due on her income from Jan 1st through June 1st, the IRS will probably not notice the 'delay'.

    Also, if you are married, if you file a joint return, and if you yourself work as an employee and have federal taxes withheld from your paycheck, you also have the option of increasing your own fed tax withholding by an extra $150-$200 or whatever a week to cover your wife's tax liability. By doing this the IRS is completely satisfied and you won't have to file or pay estimated taxes at all.

    4. I don't want to put my wifes profession as a stripper on a tax return. To claim deductions on house fee's milage etc. what "Title" should she use?
    When filing her Schedule C you have to choose an 'occupation code' of some sort. I use the 'entertainer' code.

    Also note that mileage is not deductible as a business expense if it solely consists of driving from home to a club and back home again. In order for mileage to qualify as a business expense, it must be accompanied by other expenses proving an 'overnight stay', or it must consist sole of miles driven between a 'first' business location and additional business locations (i.e. a salesman can deduct mileage between his office and customer's locations and back to his office again, but not the mileage between his home and his office).

    5. Does the IRS automatically assume that Dancers Lie on thier tax returns? I was thinking that we should set aside a certain % of her income in cash to pay the IRS if they should aduit. Sort of "You reported 40k but we think you made more so here is your bill.." And having the cash to just pay it. Or am I too paranoid? We want to be legit as we are trying to pay off debts and put money down for a house.
    Well the IRS certainly understands that dancing is usually a 'cash' business. Also, for the past 2 years IRS enforcement efforts have shifted away from checking the legitimacy of deductions and towards the under-reporting of 'cash' business income - i.e. a concerted IRS effort was/is underway towards cash oriented 'tip' occupations like casino dealers/waitstaff, cabdrivers etc. One would assume that in a case totally lacking convincing documentation of income and expenses, that the IRS is more likely to believe the media stereotype ("I'm a dancer at Scores and I earn $1000 a night") than a sob story. This would be even more the case if the person in question just bought a new car or new house or had otherwise spend significant amounts of money whose 'origin' isn't immediately apparent from documentation.

    To achieve your objective of CYA, I would recommend investing some portion of the money earned in a short term liquid investment i.e. CD's or mutual funds. Odds are that the IRS will never audit you, but it's certainly a possibility. That way if the IRS ever does decide to make your life a living hell, you'll be able to liquidate these investments to pay the IRS off ... without having to sell your house, cars etc. to raise cash.

    It is nice to see the girls on here with a good head on her shoulders. Most of the girls my wife works with simply don't
    I hate to say this, but for many dancers an 'Ignorance is Bliss' situation exists in regard to their income and taxes. They can usually escape IRS attention if they 'blow' their earnings as soon as the money comes in, and never purchase a house or car or other large items where the title/registration/transaction winds up being automatically reported to the IRS.

    However, if the day finally arrives when they do want to buy a house or new car, with today's technology and automatic reporting requirements there's virtually no way that a $30,000 car title or a $30,000 down payment and property deed registration with no reported income to explain where the $30,000 came from is going to escape IRS attention. In such a situation it's very possible that the IRS will audit 3 years back, that the IRS will send the dancer a tax bill for $30,000, the dancer will be forced to sell the house or car to pay the back taxes due to the IRS, and will wind up with her credit ruined to boot.

    As you have apparently already discovered, dancers can probably live their financial lives 'flying below the radar', or they can live their financial lives 'flying straight and level'. However, what they increasingly can't get away with is 'flying below the radar' for a considerable period of time, and then attempt to leap to the 'straight and level' using their 'below the radar' earnings as a springboard, without drawing immediate attention to themselves.

    `
    Last edited by Melonie; 03-12-2005 at 11:51 PM.

  3. #3
    Member
    Joined
    Mar 2005
    Posts
    37
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Default Re: Have not paid quarterly ? on ramifications?

    Quote Originally Posted by Melonie
    statistically speaking, yes it probably does. Since your tax return will include your wife's Schedule C business income declaration, and will also include a blank line in regard to estimated tax payments made, it's very probable that the IRS computer will hiccup. However, there is a 'first year' loophole in this regard.
    This is not exactly correct. Underpaying taxes does not raise the risk of audit. If they are paid on time (4/15) you will not be at a greater risk but you might get hit with penalties for underpayment of estimated taxes, depending on your prior year tax situation. Schedule C filers are at a greater risk for audit simply because the IRS view self employed individuals as more likely to "hide" income. An IRS agent told me last year that they were putting on a large number of agents for the sole purpose of auditing self employed (schedule C) filers.

    Quote Originally Posted by Melonie
    Missing the April 15th estimated tax payment isn't the end of the world as long as you're prepared to 'make up' for it with the second quarter payment due June 15th. As long as the total amount of estimated taxes paid in by June 15th is sufficient to cover the taxes due on her income from Jan 1st through June 1st, the IRS will probably not notice the 'delay'.
    You can make up the the shortfall by paying the full amount in the second, third and fourth quarter. However, the IRS will deem that the income earned, was earned equally throughout the year. therefore, they can determine that you were short in the first quarter. Form 2210 shows a breakdown of income, by quarter, for the year. If you put less in the first quarter, more in the second, third or fourth, you will then make the estimated tax amounts due lower in the first etc.


    Quote Originally Posted by Melonie
    Also, if you are married, if you file a joint return, and if you yourself work as an employee and have federal taxes withheld from your paycheck, you also have the option of increasing your own fed tax withholding by an extra $150-$200 or whatever a week to cover your wife's tax liability. By doing this the IRS is completely satisfied and you won't have to file or pay estimated taxes at all.
    True but why give them the money sooner than you have to. Better to earn a dollar's interest in your account than let them have it.

    Quote Originally Posted by Melonie
    To achieve your objective of CYA, I would recommend investing some portion of the money earned in a short term liquid investment i.e. CD's or mutual funds. Odds are that the IRS will never audit you, but it's certainly a possibility. That way if the IRS ever does decide to make your life a living hell, you'll be able to liquidate these investments to pay the IRS off ... without having to sell your house, cars etc. to raise cash.
    Always a good idea to have money put aside. The way most cash businesses avoid getting caught under reporting their income is by not depositing the cash into an account of any kind. This is illegal of course. I'm not saying you should do it, merely explaining how people get away with it. They store the cash and pay for things in cash. If you follow this route, you are stuck with a life of moderate assets where you can afford much more. A perfect example is the mobster who lives in a moderate house in a moderate neighborhood. He can't live in a mansion on the water if he only shows $100,000 a year in income.

    When the IRS audits a person or business, they generally ask for the tax return (lazy bastards can't pull the file themselves), bank statments for the year and expense receipts (provided they are auditing income and or receipts). If they add up the deposits and they don't tie into the income reported on the return, you will have to have good explanations for any items not reported.

  4. #4
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Have not paid quarterly ? on ramifications?

    This is not exactly correct. Underpaying taxes does not raise the risk of audit. If they are paid on time (4/15) you will not be at a greater risk but you might get hit with penalties for underpayment of estimated taxes, depending on your prior year tax situation. Schedule C filers are at a greater risk for audit simply because the IRS view self employed individuals as more likely to "hide" income.
    By my 'blank line' comment I was taking dancer-hubby's statement literally that he would not be making ANY estimated 1st quarter tax payment whatsoever. As you point out, the existance of ANY 1st quarter estimated tax payment (even if much smaller than required) would significantly minimize the risk of drawing attention from IRS computers, because those IRS computers have no way of knowing how big the required estimated tax payment actually is (at least until next year's tax return is filed). However, the complete absence of an estimated tax payment in conjunction with filing a Schedule C is a different story. In this situation the filer is basically telling the IRS that a business exists and that said business is producing income, making the total absence of a matching estimated tax payment a pretty good reason to wave a red flag.

    An IRS agent told me last year that they were putting on a large number of agents for the sole purpose of auditing self employed (schedule C) filers.
    As I said earlier, the IRS has been making a concerted effort to shift their focus away from audits and investigations involving legitimacy of deductions (which was their major attack plan in past years), and for the last couple of years has been shifting their focus toward identifying the non-reporting and under-reporting of 'cash' income. This has really only become practical for them since the advent of nationwide computer networks, the recent official co-operation between gov't agencies as a result of 9/11 and the Patriot Act, and the new IRS investigating authority granted by terrorist anti-money laundering laws etc. As you mentioned in passing, these changes now make it quick, easy and inexpensive for the IRS to check out the 'spending' side of a person's finances. The IRS can then use the records of a person's 'spending', in conjunction with a simple assumption that every dollar spent must have been earned somewhere first, as proof of non-reporting or under-reporting of income.

    I'm sure that the IRS has found that with their new approach that they can force a person to cough up more additional tax revenue by identifying unreported income and sending them a bill for 3 plus years worth of back taxes plus penalties, than they ever did from their former efforts to disallow deductions from one individual's tax return thus increasing that person's tax bill slightly for one year.

    This is illegal of course. I'm not saying you should do it, merely explaining how people get away with it. They store the cash and pay for things in cash. If you follow this route, you are stuck with a life of moderate assets where you can afford much more. A perfect example is the mobster who lives in a moderate house in a moderate neighborhood. He can't live in a mansion on the water if he only shows $100,000 a year in income.
    This is EXACTLY the point. Every year the 'network' and automatic transaction reporting requirements get more and more widespread. For example this year the IRS got a form from every college showing the amount of money each student spent for their tuition, as well as the amount of money each student received from gov't backed grants and loans. As exotic dancing has traditionally been used by many girls for exactly this purpose, it's highly likely that this year the IRS computers are going to attempt to cross-check the reported income of girls who are college students, versus the actual cost of their college tuition, versus the amount of money they spent on said tuition which did not come from loans and grants. This will of course also draw extra attention to the girls' parents' tax returns as well in situations where $30,000 in college expenses has not been offset by a matching $30,000 in reported after-tax income less grants/loans.

    Effectively, girls can now add attending college to the list of activities which will trigger potential IRS scrutiny - a list which already includes buying a house/condo, buying a new car, opening an investment/retirement account etc. Thus, as you point out, girls who continue to try and live their financial lives 'under the radar' will be limited to an ever smaller circle of financial possibilities - eventually being limited to renting a non-corporate privately owned apartment, driving a 5+ year old car, having essentially no money in the bank or in investment/retirement accounts, and paying all of their bills with money orders in amounts less than $1,000 each.

    ~
    Last edited by Melonie; 03-13-2005 at 08:30 AM.

  5. #5
    God/dess montythegeek's Avatar
    Joined
    Oct 2003
    Posts
    2,103
    Thanks
    0
    Thanked 9 Times in 5 Posts

    Default Re: Have not paid quarterly ? on ramifications?

    My answers to the original questions:

    1 Who knows. The IRS ain't saying. A voluntary compliance system, in one sense, relies on fear of getting audited.
    2 Yep there will be a penalty. It will not be the end of the world, but when you look at how much it is costing you for being lazy you will smack yourself on the forehead. You state you have been in business for two years--that wipes out the first year loophole.
    3 My take on three is pay as much as you can. Anything you pay will reduce your penalty. Penalties accrue from date due to date paid. You can skip any late fees for January due payment by filing full return by 1/31.
    4 ( and Melonie remember this)
    Dancers fall under NAICS (North American industrial classification code) as being in industry 711510 Independent Artists, Writers, and Performers
    http://www.census.gov/epcd/naics02/def/ND711510.HTM
    5 The IRS probably assumes everyone lies.

  6. #6
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Have not paid quarterly ? on ramifications?

    ( and Melonie remember this)
    Dancers fall under NAICS (North American industrial classification code) as being in industry 711510 Independent Artists, Writers, and Performers
    Yup that's it. My TurboTax program has been automatically filling in that entry for so long that I had to look it up to see you are correct !

Similar Threads

  1. quarterly tax question
    By Athenathefabulous in forum Dollar Den
    Replies: 5
    Last Post: 05-27-2010, 03:24 PM
  2. filing quarterly?
    By tori1982 in forum Dollar Den
    Replies: 8
    Last Post: 04-21-2006, 02:40 PM
  3. Paying Quarterly
    By AudreyLeigh in forum Dollar Den
    Replies: 7
    Last Post: 01-30-2006, 07:05 PM
  4. GPT (Get Paid To..) and PT (Paid To..) Programs
    By GoldCoastGirl in forum Dollar Den
    Replies: 14
    Last Post: 02-03-2005, 10:51 AM
  5. Filing Quarterly
    By julzgulz in forum Dollar Den
    Replies: 7
    Last Post: 01-16-2005, 03:34 PM

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •