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Thread: incorporating for strippers?

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    Default incorporating for strippers?

    I hear two opposite opinions on the subject of incorporating for strippers. On one hand, a corporate tax rate is lower than a self-employment rate,and putting your assets under a corporation is supposed to provide better protection in case of a possible in case you are sued. On top of that, you could always put "working for a so and so corporation" in your tax return and on your resume in case you are looking for a job outside of the strip club industry. Which should be helpful if you are not comfortable with putting "an entertainer" as your current occupation title on any document.
    On the other hand, opening a corporation is quite expensive if you do it right and hire a good attorney, plus there is a higher chance of an IRS audit.
    My tax person says opening a corporation for a stripper is not worth it. I would like to hear opinions of others as well.

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    Default Re: incorporating for strippers?

    I hesitate to take the advice of someone who makes such a blanket statement like "it's not worth it for a stripper". It IS worth it for some strippers. Depends on your situation and what you want to accomplish with it. I would seek the advice of another (more open-minded) tax person to get a better opinion on your specific situation.

    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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    Default Re: incorporating for strippers?

    Your accountant is referring to a C corp. This is the most complex type of corporation , but it is the only one that really allows for a lower tax rate as well as some other unique features. However, there are indeed costs associated with starting and maintaining a C corp - mostly corporate record keeping and corporate tax returns.

    Thus as Brigette states the 'value' of forming a C corp is a trade-off between those additional costs and the tax / other savings that a C corp would make possible. The higher a dancers' income, and the more complex her business activities, the more beneficial a C corp becomes. However, for dancers who work 'part time', who do not travel beyond one or two clubs in their home city, who do not do magazine or movie work etc. the additional costs related to a C corp could indeed exceed the benefits.

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    Default Re: incorporating for strippers?

    Melonie, what if a dancer works part time at her home club and occasionally travels to other cities to work? Where can I read about the costs of starting and maintaining a C corporation?
    Thank you.

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    Default Re: incorporating for strippers?

    Personally, I think a C Corp is NOT the way to go. IF you do incorporate then file as a sub-S corporation or even as an LLC (different than a corporation).

    As a C corporation you'd be subject to double taxation for any money you take out of the company beyond salary and expenses. With an S corp any income in the corporation is passed on to your personal income return and only taxed once. Thus you can take draws and not pay dividend income on them.

    Setting up a corporation is rather simple really. You could probably get it done for a couple hundred dollars. The advantage is that it's far easier to write off things against your company as expenses. You aren't subject to limitations based on income as you would be on your personal return. The disadvantage is that you'll have to track your books or hire someone to do so (and put you on payroll). Then you will have an additional tax return due at the end of the year. Depending on your income and expenses you could easily make up for the added expenses though. I'd go with an S-corp or an LLC if I were you but that's also because I'm comfortable with setting up and establishing those kinds of companies.

    Another question you'd have to ask is what would your insurance requirements be? Would you have to maintain workers compensation and general liability insurance? I'd think the club would normally cover you as an employee but not sure as in independant contractor.

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    Default Re: incorporating for strippers?

    I always cringe when someone recommends an S corp. I wouldn't touch that with a 20 foot pole.

    Don't take money out of the C corp other than salary and expenses, and there'll be no "double taxation". Also, C corp allows for more ways to lower / delay taxes...

    I have not heard of a stripclub offering worker's comp for dancers. If you incorporate and hire yourself as an employee, you'll have to pay that out of the corp. Incorporating involves alot of extra paperwork and recordkeeping that we never even think about as independents or sole proprietors.

    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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    Default Re: incorporating for strippers?

    Quote Originally Posted by Bridgette View Post
    I always cringe when someone recommends an S corp. I wouldn't touch that with a 20 foot pole.
    Why?

    Quote Originally Posted by Bridgette View Post
    Don't take money out of the C corp other than salary and expenses, and there'll be no "double taxation". Also, C corp allows for more ways to lower / delay taxes...
    How can you lower/ delay taxes moreso with a C corp than with an S corp?

    As for not taking out anything more than salary and expenses, with an S-corp you can take out some as salary and some as draw thereby avoiding some payroll taxes at 15.3%. I'd say that's a distinct advantage of an S-corp.
    Quote Originally Posted by Bridgette View Post
    I have not heard of a stripclub offering worker's comp for dancers. If you incorporate and hire yourself as an employee, you'll have to pay that out of the corp. Incorporating involves alot of extra paperwork and recordkeeping that we never even think about as independents or sole proprietors.
    All companies who have employees must have worker's comp. I'd say the amount of additional paperwork is nominal IF you keep the appropriate records as a sole propietor. I think the problem is that most sole proprietors do no keep appropriate records in the first place so comparing that to a corp, then yes, it would seem to be a lot of additional work.

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    Default Re: incorporating for strippers?

    just a couple of issues for C corps ...

    - retained earnings are taxed at the corporate rate, which typically never exceeds 14% federal plus state. In contrast, individual income tax rates can approach 40% with federal + state + SE tax. Individual long term cap gains (on C corp shares owned) are presently taxed at 15%

    - being able to control the amount of 'dividends' paid out to yourself versus retained by the C corp guarantees that you can stay out of Alternative Minimum Tax range, which is not the case with an S corp or LLC or sole proprietorship.

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    Default Re: incorporating for strippers?

    Quote Originally Posted by Melonie View Post
    just a couple of issues for C corps ...

    - retained earnings are taxed at the corporate rate, which typically never exceeds 14% federal plus state. In contrast, individual income tax rates can approach 40% with federal + state + SE tax. Individual long term cap gains (on C corp shares owned) are presently taxed at 15%

    - being able to control the amount of 'dividends' paid out to yourself versus retained by the C corp guarantees that you can stay out of Alternative Minimum Tax range, which is not the case with an S corp or LLC or sole proprietorship.
    Federal Corporate tax rate is 15% up to $50k, 25% 50-75k, 34% 75-100k, 39% 100-335k (from tax table 1120).

    Single Federal Personal tax rate is 10% $0-7.5k, 15% $7.5k-30.6k, 25% $30.6k-74k, 28% $74k-154k, 33% 154k-336k (from tax table 1040).

    Your comparison of 14% corporate to 40% personal plus, plus is not accurate.

    I agree that a C corp would let you manipulate your personal income such that you could avoid AMT. I'd bet though that since most of your deductions would be run through the company, you'd have few personal deductions and therefore not subject to the AMT. I'm sure there'd be exceptions but for most in the industry, that'd be the case.

    I like taking your companies profits partially as a non-taxable draw (S corp) versus either a bigger W-2 or double taxed dividends (C corp). For this type of business and cash flow I'd expect on average I think it's the best bet. There might be an occasion where a C corp is best but I'd bet that's an exception.

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    Default Re: incorporating for strippers?

    ^^^ your federal personal tax rates do NOT include the 15.3% self-employment tax that would also apply. Thus 30.6k of personal income would be taxed at 25% federal income + 15.3% self-employment or 40% ... without considering state and local income taxes. C corp dividends are NOT subject to self-employment tax or employee SSI tax !

    On 100k of gross receipts, it is possible to 'split' those receipts into corporate earnings plus personal earnings, with a lower progressive tax rate applying to both 'fractions' than to a single 'total' as would be the case for S corp or LLC or sole proprietor.

    Re AMT, the largest single tax deduction subject to AMT limitation is home mortgage interest ... which is a PERSONAL deduction not a corporate one. The second largest is state and local taxes paid, which are also primarily PERSONAL not corporate

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    Default Re: incorporating for strippers?

    Quote Originally Posted by Melonie View Post
    ^^^ your federal personal tax rates do NOT include the 15.3% self-employment tax that would also apply. Thus 30.6k of personal income would be taxed at 25% federal income + 15.3% self-employment or 40% ... without considering state and local income taxes. C corp dividends are NOT subject to self-employment tax or employee SSI tax !

    On 100k of gross receipts, it is possible to 'split' those receipts into corporate earnings plus personal earnings, with a lower progressive tax rate applying to both 'fractions' than to a single 'total' as would be the case for S corp or LLC or sole proprietor.

    Re AMT, the largest single tax deduction subject to AMT limitation is home mortgage interest ... which is a PERSONAL deduction not a corporate one. The second largest is state and local taxes paid, which are also primarily PERSONAL not corporate
    You are incorrect. You are not taxed on self-employment tax (15.3%) for S-corp income. You would be as a sole proprietor but not S-corp income. The idea is to pay yourself a reasonable salary (w-2 income) and the rest is profit reported on your 1040 and taxed as regular income.

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    Default Re: incorporating for strippers?

    Quote Originally Posted by Melonie View Post
    On 100k of gross receipts, it is possible to 'split' those receipts into corporate earnings plus personal earnings, with a lower progressive tax rate applying to both 'fractions' than to a single 'total' as would be the case for S corp or LLC or sole proprietor.
    Right, but eventually you'd want to take that money out of your C-corp and when you did so, you'd be taxed again on the same money. Double taxation = bad.

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    Default Re: incorporating for strippers?

    he idea is to pay yourself a reasonable salary (w-2 income) and the rest is profit reported on your 1040 and taxed as regular income.
    woah ... bad idea in New York at least, since state law mandates that all 'employers' pony up workmen's comp + unemployment insurance premiums that are ridiculously expensive.

    As to double taxation, I suppose that this also boils down to state / local income tax specifics. I would much rather be taxed twice at 15% each time than taxed once at 40%.

    Robert I hear you, but you're lucky enough in Florida not to have to deal with an 8% state income tax rate plus a 3% city income tax rate plus state workmen's comp and unemployment insurance premium levels that will curl your hair like I do in New York ! These state / local issues really create a huge penalty on 'ordinary' income.

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    Default Re: incorporating for strippers?

    Quote Originally Posted by Melonie View Post
    woah ... bad idea in New York at least, since state law mandates that all 'employers' pony up workmen's comp + unemployment insurance premiums that are ridiculously expensive.

    As to double taxation, I suppose that this also boils down to state / local income tax specifics. I would much rather be taxed twice at 15% each time than taxed once at 40%.

    Robert I hear you, but you're lucky enough in Florida not to have to deal with an 8% state income tax rate plus a 3% city income tax rate plus state workmen's comp and unemployment insurance premium levels that will curl your hair like I do in New York ! These state / local issues really create a huge penalty on 'ordinary' income.
    Fair enough. I know nothing of New York specific business laws. I defer to you on that one. Here, unemployment is nominal, 2.7% of the first $7k or $189 for one employee. FUTA is likewise nominal at .8% of $7k or $56.

    Workers comp is an issue that might be expensive but that'd hit you regardless of your corporate tax status (C vs S). That's another reason for paying yourself a reasonable salary and taking the rest as profit as workers comp is charged as a percentage of salary. More salary = more workers comp charges.

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    Default Re: incorporating for strippers?

    I set up an LLC for myself. I'm only taxed once as the business income is mine, kind of like if it were a proprietership (spelling?). Anyway, it still provides me protection, while not being (too) complicated.

    Oh, and then I have an accountant to do all the tax stuff.

    It only cost a couple hundred dollars.

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    Default Re: incorporating for strippers?

    Mel, I agree that as a corporation, some states force you to pay comp...but to employees. If you have no employees...no comp.

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    Default Re: incorporating for strippers?

    ^^^ which brings us right back to the conclusion that dancers considering forming a corporation of any kind really do need to consult a professional who is current on the ramifications re federal, state & local taxes given that particular dancer's location and financial situation.

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