You may be wondering whether you need to pay taxes at all, or about your likelihood of ‘getting caught’ if you choose not to file. This section should help you figure out what you need to do to avoid being audited by the IRS or facing prosecution for tax evasion.
Also, check our Financial Resources section for a list of dancer-friendly accountants and financial advisers, including low-cost options.
If you do not file taxes, you may be targeted by the IRS and could be prosecuted for tax evasion, tax fraud, or related crimes. Even illegal income is subject to the federal income tax and must be accurately reported if it is over $400. If you underreport, the government may have up to six years or more to audit you. If you fail to file, there is no statute of limitation for the IRS to come after you for the years that go unreported.
“First, file and pay your taxes. As a stripper you should have enough business expenses to make any income taxes minimal. It is 100% to your advantage to file taxes. It provides a paper trail should you ever wish to use credit to buy a car or a house. It also legitimizes the profession of exotic dancing and makes it politically difficult for cities and states to close clubs for morality reasons.” – Stripperweb
You can file using the 1040 EZ form, which is available online. In New York City, you owe federal taxes, state taxes, a New York City tax, and a social security tax.
An accountant can help you maximize your return.
There are different categories of taxes depending on where you are getting your income and what your relationship is with your employer or your clients. Here are some of the ways you can file, but you should talk to an accountant or attorney if you have questions.
Determination of status: Whether you are an independent contractor or an employee is a case-by-case determination, and it has tax implications for both you and your employer.
Mischaracterization of status: If you have been mischaracterized as an independent contractor when you should be an employee, then you can make a claim for refund for overpayment of taxes. You should consult a tax attorney if this is the case.
Some dancers fit squarely into this category because you work for a person or company that gives you regular pay and controls your hours, services, etc.
Employers and employees are jointly responsible for employee taxes, and your employer must file a W-2, and withhold taxes, on your behalf.
Assuming you are an employee, you can easily file. You do not need to list the specifics of your occupation, and can instead list “entertainer” or “consulting services” as your occupation.
If you are an independent contractor or have some other type of relationship with your employer, you might need to file as self-employed.
If you file as self-employed, you have to pay both the employer’s tax and the employee’s tax, but you are eligible for a number of tax deductions. You may be able to deduct items that are primarily work expenses. Some examples include:
- Insurance costs, including health insurance or a pension plan.
- Most costs associated with earning your income, including any travel beyond commuting, the computer you use for scheduling appointments, the portion of your apartment you use for business, and money spent on advertisements.
- Beauty-related items such as clothes, hair extensions, cosmetics, and gym memberships may or may not be allowed.
IMPORTANT: If you intend to file as self-employed, you should save your receipts for all these items!
There is, however, an extra tax associated with being self-employed, and a self-employed taxpayer may be more susceptible to an audit than someone with an income hobby.
Some dancers may categorize their income as “hobby income,” but this category is not technically applicable to professional dancers.
The IRS has a list of criteria for whether something is a hobby or self-employment, and factors such as profit, separate bank account or business license, and where you regularly spend your workday may lead the IRS to categorize it as self-employment rather than a hobby
There is no limit on the amount of money you can receive in one year as a gift.
The person receiving a cash gift has no obligation to pay taxes. The person giving the gift may give you up to $13,000 PER YEAR without gift tax – but if the gift is larger than that they will have to report the gift, and possibly pay taxes. (This may happen cumulatively over a year, for instance, if someone is gifting you a $2,500/month to help you get through school – they’ve given you $30,000, and have created a possible taxable event of $17,000.)
Additionally, if the gift is of appreciated stock, property or collectibles, there may be capital gains tax due. We should all be so lucky to have this problem!
However, if you are audited and are receiving large gifts, this may cause the IRS to notice you, and they may want to talk to the individual who is giving these gifts. They can be traced to you through your bank accounts or other paper trails.
To determine if a payment is a gift, it has to be motivated by affection, respect, admiration or charity. A person is entitled to treat cash and property received from a lover as gifts as long as the relationship consists of something more than payments or tips for dancing or other forms of sex work.
The best way to document income is to enter your net take-home pay into a log or diary every day. Document everything and keep receipts.
If you make part of your income through tips, you should track those amounts.
If you are an independent contractor or seek to file as self-employed, you may want to keep a separate business credit card for all business-related expenses.
Accountants have a duty of confidentiality to their clients, but this confidentiality is extremely limited. It does not extend to criminal proceedings. Should your tax preparer be subpoenaed to appear as a witness against you, your communications would not be covered, so you should not discuss or disclose any information to your accountant which may be used against you in a court of law.
If your tax preparer is an attorney, he must be “acting as an attorney as to the statements” alleged to be privileged. Whether that information is privileged depends on the purpose of the conversation.
Taxpayers and their lawyers have had the best success in claiming privilege when the attorney provides other legal services to the client and also prepares the tax return.
With the current federal deficit, the IRS is highly motivated to find any source of revenue. Also, new technology is making it easier and easier for the IRS to figure out who’s spending more money than they appear to be earning.
If you’re not reporting all your income, the government may assume you are doing something illegal (like dealing drugs) to make that money. You may end up with a prostitution conviction if the money is from a sugar daddy or other source like bachelor parties.
According to a tax adviser on Stripperweb, you can usually deposit about $1000 at a time without any alarm bells going off. However, it’s becoming more and more likely for people making money in cash to be audited by the IRS.
Check out Stripperweb’s forums on taxes for more information and advice.