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Thread: tax question

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    Featured Member georgiapeach's Avatar
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    Default tax question

    the club i work at pays us a small wage and reports an additional $10 an hour in tips. this is less then i actually make in tips; do i need to report the difference?

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    Banned Melonie's Avatar
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    Default Re: tax question

    by the letter of the law, yes you do. In fact, you need to report them to the CLUB, so that they are run through the club's payroll system and included in your weekly check. The problem is that the club will probably not allow you to do this, because this also means the clubowner has to pay more money towards SSI, disability, unemployment insurance etc. If so, then you are stuck between a rock and a hard place - because if you report more earnings from the club on your tax return than the club's payroll system reports you earned at the club via 1099, aaa-ooo-gah ... discrepancy ... audit ... investigate !

    Most dancers who find themselves in the above situation also work at other clubs where the dancers are treated as independent contractors. If so, then you can quasi-legally 'shift' your tip earnings in excess of $10 an hour from club A, and add it to your actual income reported from club B. This isn't totally squeaky clean, but at least it reports your true income without causing IRS computers to wave red flags about Club A - and since Club B doesn't keep records of dancer incomes in any form there's no paper trail to disprove the accuracy of your tax return.

    If you don't work at a second club which treats you as an independent contractor, and all of your income comes from Club A that treats you as an employee, then you've got a problem trying to report more income than Club A pays you by check. If you don't report the additional income, then you're at risk of a personal audit if your total paper trail doesn't jive with the amount of income Club A reported (i.e. your monthly rent, car payment, tuition payments, credit card charges, whatever add up to more money than Club A says you earned in the first place). If you do report more income from Club A than Club A says you earned in the first place, this is automatic audit bait for both the Club and yourself and probably other dancers also working at this club since the IRS computers will puke out the discrepancy immediately. If you don't actually work for a second club, and if you attempt to 'invent' a second club on your tax return to report Club A income in excess of $10 an hour, then technically you're guilty of fraud (because you are inventing a ficticious business).

    Bottom line ... What Club A is doing about reporting $10 an hour in tip income across the board is technically illegal. There is no way that a dancer working at Club A can be totally legal about reporting all of her income without 'blowing the cover' on Club A's payroll system policies, which will potentially get her audited along with Club A and other dancers working at Club A (who are probably not reporting their tip incomes in excess of $10 per hour). However, even asking Club A to report actual tip incomes will probably get a dancer fired, as the club's accountant will undoubtedly shift into panic mode immediately.

    Probably the option which will draw the least attention to yourself, to the club, and to other dancers at the club, is to report your income in exactly the same way as the other dancers do. However, this is probably illegal by the letter of the law.since they're probably under-reporting their true incomes. This can have profound consequences if and when the under-reporting is ever discovered, particularly if other issues come into play like parent's tax returns, applications for student loans/grants etc. where the under-reported income also winds up being entered. The odds of having under-reported income discovered rise exponentially if the person earning the money winds up with a paper trail which shows they saved / invested / spent more money than they actually reported as earnings. Thus going this route essentially means stashing dollar bills in your mattress for any amount you earn which is over and above $10 per hour in tip income that the club reported, and never being able to spend that money on anything that will generate automatic reporting to the IRS like a home mortgage, a car title, tuition payments, bank accounts, investment accounts, or purchasing anything that costs more than $3000 in the state of NY. The NY state tax people are watching car titles like hawks lately, and more than one NY dancer was busted last year when they purchased a $30,000+ new car with insufficient previously reported income to explain how they could afford rent and utilities and food and credit card payments and bank account deposits and still come up with another $30,000 for the car !

    The least damaging option is to start working at a second club which treats you as an independent contractor, and then 'shifting' your unreported tip earnings from Club A to becoming increased reported earnings from Club B. At least this way all of your own personal income is reported and the IRS gets most of the taxes that are due to them, providing little or no motive for the IRS to do any investigating or take any action if the 'shifting' is ever discovered. However, dancers who do this wind up screwing themselves since they wind up having to pay the 'employer's share' of SSI taxes due on the 'shifted' earnings, which legally should have been paid by Club A's owner. Again the only 100% legal option is for Club A to accept your actual tip earnings reports on a weekly basis, to run those earnings through the club's payroll system and into your weekly checks, and for Club A to pay the necessary SSI, medicare, unemployment and comp payments that will go along with the higher reported tip income.
    Last edited by Melonie; 05-07-2006 at 01:47 PM.

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    Featured Member georgiapeach's Avatar
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    Default Re: tax question

    thanks Melonie!

    the only problem is that my contract with the current club prevents me from dancing at other clubs in the area.

    i do have a side business training horses and teaching riding lessons; could i shift my excess tip money there?

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    God/dess VenusGoddess's Avatar
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    Default Re: tax question

    ^ If you are not an "employee" of the facility, but are an independant contractor, then yes you could shift your earnings there. However, if they pay you by check and your numbers do not equal theirs, there could be a problem.

    You may want to consider making a "side business" where you report being paid completely in cash and reporting the remainder of the tips there.

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    God/dess sxybrat07's Avatar
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    Default Re: tax question

    I am in a similar situation, however, our club DOES allow us to report tips...my question being (sorry to hijack) I only make 2.13 an hour. If I claim the full amount of tips I make in a night, the 2.13 isn't going to be enough to cover the taxes on that. ( I don't think ) I don't mind not getting a paycheck, but if it's negative I don't know how that would work? Any input?
    I believe you Dottie and you have my support

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    Member Jon_CPA's Avatar
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    Default Re: tax question

    TAX ADVICE DISCLOSURE

    PURSUANT TO FEDERAL REGULATIONS IMPOSED ON PRACTITIONERS WHO RENDER TAX ADVICE (“CIRCULAR 230”), WE ARE REQUIRED TO ADVISE YOU THAT ANY TAX ADVICE CONTAINED HEREIN IS NOT INTENDED OR WRITTEN TO BE USED FOR THE PURPOSE OF AVOIDING TAX PENALTIES THAT MAY BE IMPOSED BY THE INTERNAL REVENUE SERVICE.





    Georigapeach,

    Under IRC Sec 6053(a) you are required to report all tip income to your employer on or before the 10th day of the following month.

    Your employer is responsible to pay their half of the payroll taxes on such reported income, and to withhold your share of income taxes and payroll taxes from any wages they may pay to you. If you fail to report such income to your employer in the time proscribed then you are responsible for claiming such tip income when you file your 1040 or 1040A. You will also be held liable for both the employer and employees portion of payroll taxes due on the unreported tip income.

    Your employer is engaging in a “good faith” agreement by estimating your earnings when he is allocating a $10 per hour tip rate when the tips earned by his employees are not reported to him. Your employer is obligating themselves to use the higher of this amount or your reported them by the 10th day of the following month. This “good faith” agreement is not illegal.

    As to the advice that you have received to shift this income as to being received through a different source, while this may in substance have the effect of you paying the legal taxes due on the income, it is in form a filing of a fraudulent return. It is my professional advice that you do not engage in this action.



    I recommend that you consult a tax advisor in your area.



    Respectfully,



    Jon_CPA.

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    Banned Melonie's Avatar
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    Default Re: tax question

    thanks Jon ... but what is she supposed to do when her 'employer' the club refuses to allow her to report her actual tip income over and above the $10 an hour ? In the 'real world', making a stink over this will probably get her fired from that club.

    It seems a bit of a mix of employee and IC in some ways.
    As Jon points out officially, and as I was trying to tap dance around, the IRS doesn't legally allow such mixing - a dancer is either an 'employee' or an 'independent contractor', but she can't be both at the same time in the same place of work. However, most 'employer' clubs who treat their dancers as 'employees' attempt to minimize their own operating expenses by pulling some arbitrarily low number out of the hat in regard to reported weekly dancer earnings that are run through the club's payroll system (an on which the club must pay a percentage of the dancer's earnings out in SSI, medicare, comp, unemployment etc.). They assume that dancers don't understand the tax laws, they assume that dancers won't want to report an earned income any higher than the club's paycheck total, and they assume that if their W2 paperwork agrees with the dancers' 1040 paperwork that no questions will be asked.

    However, when one dancer attempts to 'rock the boat' in regard to wanting to report her entire income through the club's 'employee' payroll system as required by the IRS, the 'employer' club's scam to avoid the club's true cost of SSI, medicare, comp and unemployment payments is immediately at risk. Moreover, so is the 'scam' of other dancers working at that club who have simply gone along with the club's W2 numbers. Thus one dancer even raising the question with the club about reporting her entire tip income - or even letting the club know that she intends to separately report her tip income over and above the club's W2 amount, risks the IRS cross-checking tax returns and the entire 'scam' blowing up for everyone concerned. This is the reason that 99% of the time, dancers who raise such a question will find themselves quickly fired from that club for some reason or another.

    Again as Jon points out strongly and as I was trying to tiptoe around, there is no way that a dancer can pull off 100% legal tax compliance when working in the above type of club. Ironically, as Jon also points out but probably doesn't realize, the 'good faith' provisions of the tax law actually lead to the dancer being the one who is legally at fault not the club (because the club will claim the dancer never even raised the subject of reporting more tip income than the $10 an hour 'good faith' estimate, and the dancer has no way of proving such a conversation ever took place)!

    PS for the record, I'm not qualified to give tax advice ... I merely try to relay my own personal experiences or the experiences of others I have worked with.

    PPS GeorgiaPeach lists Upstate NY as her current location. There are extremely few clubs in upstate NY that treat dancers as 'employees' rather than 'independent contractors'. The handful that do treat dancers as 'employees' usually wind up doing so because they have already run afoul of the IRS or NY state tax dep't, and the 'employee' payroll system stemmed from a settlement agreement. Thus any upstate NY club that treats its dancers as 'employees' is going to be extremely paranold of any dancer even mentioning the issue of taxes / reported income. This is a no-win situation for dancers working for such clubs ... and the only answer I was able to come up with in regard to such clubs is to simply quit and work elsewhere without ever raising the issue of taxes.
    Last edited by Melonie; 05-07-2006 at 05:25 PM.

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    Featured Member georgiapeach's Avatar
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    Default Re: tax question

    Quote Originally Posted by Pan Dah
    How are private dances charged and treated. Does the OP collect the full amount? Does the club collect the amount and give the dancers their cut? I’m just trying to see a middle ground position and find out whether Mel and VG think it would work…

    the cost of a dance is just as much as the customer wishes to tip. prostitution laws prevent us from quoting prices in this area (with a few exceptions). the club receives no portion of our tips, although we are expected to tip out bouncers and dj's. but we do not pay any actual house fees.

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    Featured Member georgiapeach's Avatar
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    Default Re: tax question

    Quote Originally Posted by Melonie
    the only answer I was able to come up with in regard to such clubs is to simply quit and work elsewhere without ever raising the issue of taxes.
    i really don't want to quit this club. it is, by far, the cleanest and most upscale in my area. plus they're really good about not bending the rules as far as customer contact goes, which i like. the regular patrons know they aren't going to be getting any extras, at least not in the club.

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    Featured Member MadisonM's Avatar
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    Default Re: tax question

    ^^^ I'm curious what the average "tip" is too. Do they pay you before the dance, cuz if they pay after the dance, they could decide to "tip" you just a few dollars- I definetely wouldn't be happy with that. Can you kind of guide them along and say, "maybe a little more than that" if they try to give you too little?
    Take the road less traveled- just make sure you have a map.

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    God/dess VenusGoddess's Avatar
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    Default Re: tax question

    My old club would not allow you to claim your tips. You had to claim your tips under the IC contract you signed. So, we got paid an hourly wage, and then we had to claim our tips under our IC status. The smart dancers saved the money on the "paychecks" to pay the taxes on their IC reported income at the end of the year.

    It's very confusing. It's a pain in the ass...and, if you cannot claim your tip money any other way, then you will have to speak with someone who is knowledgeable in that area.

    Good luck...

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    Featured Member georgiapeach's Avatar
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    Default Re: tax question

    Quote Originally Posted by MadisonM
    ^^^ I'm curious what the average "tip" is too. Do they pay you before the dance, cuz if they pay after the dance, they could decide to "tip" you just a few dollars- I definetely wouldn't be happy with that. Can you kind of guide them along and say, "maybe a little more than that" if they try to give you too little?
    the lowest tip i've received is $2. the highest is $100. the average is about $15.

    we are allowed to tell customer what the average tip is if they ask. we are not allowed to ask for more money than we receive (at least not directly).

    most customers pay after the dance, though some pay before. we are only expected to dance for a 1/4 to 1/2 of a song though. so if they tip me 1st and it's a lousy tip i'll reward them with a short, lousy dance. heh. if they tip me after and it's a lousy tip, i won't dance for them again.

    the rules were the same at the gogo bar i used to work at - though the tips were significantly lower. around $3-5 on average for a full song. i wasn't there for long at all.

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    Banned Melonie's Avatar
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    Default Re: tax question

    My old club would not allow you to claim your tips. You had to claim your tips under the IC contract you signed. So, we got paid an hourly wage, and then we had to claim our tips under our IC status. The smart dancers saved the money on the "paychecks" to pay the taxes on their IC reported income at the end of the year.
    Venus, this structure also sounds very 'fishy' given IRS laws and state laws about 'employee' status versus 'independent contractor' status. The 64,000 question ... did the club issue paychecks for the hourly wage have income taxes, SSI tax and medicare tax withheld (meaning that the club was acting as an 'employer'), or did the club pay the hourly wage to the dancers in cash / zero withholding (meaning that the club was paying dancers a 'fee' rather than a 'wage') ?

    Mel, you have a vast storehouse of NY legal knowledge. Educate us, please.
    The setup that GeorgiaPeach describes is a new one on me ! I can only make one speculation about the private dances as GeorgiaGeach's club - that the customers actually must pay up front at the club's cash register for 'admission' to the private dance area, that the dancers never see any part of this 'admission' money, thus the additional money paid by the customer directly to the dancer is indeed a 'tip'.

    If this were the case, then legally speaking, the club has no financial interest in 'what goes on' once the customer enters the private dance area with the dancer, meaning that the club can't be charged with 'promoting' if a dancer were to be busted for 'excess mileage' - which could explain why dancers are instructed not to quote a fixed price. This club's lawyer has managed to separate the money paid 100% to the club as an 'admission' charge from any additional money paid to the dancers as 'tips' ... thus the club doesn't need to keep any records in regard to how many dances actually take place once the customer is 'admitted' to the private dance area ... thus there is no paper trail to back up how much 'tip' money individual dancers are earning or not earning ... thus there is no potential 'hard evidence' that the club is knowingly under-reporting dancers' tip incomes.
    Last edited by Melonie; 05-08-2006 at 04:02 AM.

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    Featured Member georgiapeach's Avatar
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    Default Re: tax question

    Quote Originally Posted by Melonie

    The setup that GeorgiaPeach describes is a new one on me ! I can only make one speculation about the private dances as GeorgiaGeach's club - that the customers actually must pay up front at the club's cash register for 'admission' to the private dance area, that the dancers never see any part of this 'admission' money, thus the additional money paid by the customer directly to the dancer is indeed a 'tip'.

    we haven't got a private room at my club. customers can only receive table dances on the regular floor. they do charge a cover for admission to the club though...

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    God/dess VenusGoddess's Avatar
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    Default Re: tax question

    Quote Originally Posted by Melonie
    Venus, this structure also sounds very 'fishy' given IRS laws and state laws about 'employee' status versus 'independent contractor' status. The 64,000 question ... did the club issue paychecks for the hourly wage have income taxes, SSI tax and medicare tax withheld (meaning that the club was acting as an 'employer'), or did the club pay the hourly wage to the dancers in cash / zero withholding (meaning that the club was paying dancers a 'fee' rather than a 'wage') ?
    On the pay stub, taxes were taken out. We were paid, however, minimum wage...not waitress or server wages (so, paid around $5.25/hr as opposed to the server wage of $2.35/hr or whatever it is). I'd also like to add that we were "paid" be 2 separate companies (one was the club's "official" name and one was a bogus entity that really did not have any place of business and if you looked at the address or knew the address, it was just an empty building.) They took taxes and all out, but they would NOT account for tips...as they didn't need to. We were "employees" to the "employers". However, we did have to pay house fee (range from $60-$120/night) and we had to tip out the Champagne Lounge host, the Floor guys, and the DJ every night. When we changed in our funny money, we had to pay 25% of that total, as well. Our funny money exchanges were recorded and reported on a 1099. Most dancers just paid taxes on what was reported on the 1099. I actually reported all of my money and then did my deductions accordingly. I still ended up paying, but did save money up to cover that (although I saved more than what I needed to cover the difference), so it wasn't a problem. One of the reasons I quit there is because I just had a feeling that they were going to get busted for this kind of system. In Illinois, it is illegal to charge an employee to work. However, we were employees all night (had a time clock that was punched) and the only time we were independant contractors was when it came time to report tips and when it was tax time. A company can have you as an employee and as an IC...however, you cannot be BOTH at the same time. If you have to punch a clock, then you are an employee and they cannot charge you to work. Otherwise, you are an independant contractor and they can...but they cannot do both at the same time.

    I just had a really bad feeling about it. They hadn't been audited...they hadn't been called out on it...but, I have a feeling with all of the crap going on with SC's, they will and I don't want to be a part of it. Besides, I took care of my butt and reported every cent I made. Knowing that, what I reported probably "out did" what a lot of dancers did. Since I know that 98% of the dancers only reported what was on the 1099.

    It's just an audit waiting to happen. And, while I could still get audited for my return, I've got all my documentation...it'll probably set off red flags for them to start going after the other "employees" of this club. I live well within my means and the dancer income I had only supplemented scorpio's income. However, knowing what a lot of dancers CLAIMED they earned and the lifestyle they are actually LIVING is what will get them in trouble. While I felt kinda bad doing that way, I wasn't about to pay fees, penalties, and all that other crap.

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    Banned Melonie's Avatar
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    Default Re: tax question

    However, knowing what a lot of dancers CLAIMED they earned and the lifestyle they are actually LIVING is what will get them in trouble
    ^^^ yup, exactly ! 2 + 2 cannot equal 22 without setting off IRS computer alarms these days. A whole bunch of dancers were recently busted in NY based on 2 + 2 = 22 when the automatic reports in regard to car titles, college tuition payments etc. started arriving and were compared to reported incomes on NY state tax returns.

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