The IRS and You

[Guest MuscleCruzer]

With fear and trembling and I venture into this area . . .

I have a friend who has started escorting. He has temp jobs where he has regular tax withholdings, but now is faced with the issue of his "night job" money. I was wondering if any of the working boys out there would be willing to share how they have structured their business? Are you reporting all or some of the income or are you staying underground only? There are many disadvantages to having the income totally off the books, like when it comes to time to get credit for a house or car or whatever. If you are willing to share some ideas but don't want to post here feel free to contact me via email: [email protected]

If this post is way out of line . . . forgive me, I don't want to upset anyone.

[Mikeyz7]

Great question MC. Hopefully you can get some response to this. I would think it is safer to report the income (or at least some of it) and pay tax on it. You don't need to call it "income from escorting". Consulting or personal services would suffice.

[OneFinger]

I hesitate to respond because I'm NOT an escort. But, I did moonlight (part-time) for a CPA firm where they were all Enrolled Agents (qualified to represent clients for the IRS). In addition, a couple of the CPAs were also tax attorneys.

 

Based on my experience there, here are some of the things that I feel could be problematic IF the escort were involved in an audit.

 

[li]Unexplained Income: Numerous cash deposits to checking or savings accounts, even if they are under the federal reportable limit, raise eyebrows. The IRS will demand to know the source of the income and proof that tax was paid. (While the IRS may not suspect escort activity, they will definitely think "drug activity" and will actively pursue the source of the income.)

 

[li]Missing Expenses: A checking account that does Not include rent/mortgage, utilities, car payment, food, gas, etc. is suspect. The IRS will question how those items are paid for. So, using escort money to purchase money orders and pay for "necessities", is not a good idea.

 

[li]Unexplained Purchases: Saving money under the mattress and purchasing big ticket items (cars, computer, furniture, clothes, travel, etc.) with cash also raises eyebrows.

 

If I were working under-the-table, I'd take great care on how the money was spent. For example, I would still use check/credit card for gasoline purchases on every other tank of gas. I'd ensure that checks were written at the grocery store at least once a month. Use credit card for all travel, hotel, eating, etc. while on vacation.

 

I'd use the extra cash for untraceable/consumable stuff such as eating out while at home, theatre tickets, concerts, and similar items.

 

A previous suggestion was to report the income as self-employment work such as "consulting". This is a good suggestion but also has a major problem. How are you going to account for payments being made in cash? In most businesses that is not the "normal" way of doing things and would raise major questions.

 

I hope the escorts will respond and enlighten us on how business is done. I'd love to hear how they launder their money.

[BigK]

I suggest getting a dba (doing business as) from your state like XXX Consulting. Then open a business account at a bank. Deposit whatever portion of your earnings you like into this checking account and pay any business related expenses (auto expense, office expense, travel, lodging and professional fee's like CPA's) from this account.

 

There is a very simple IRS 1040 form called Schedule C. All it wants is the income and expense from your dba business which is easily calculated from your business checking account.

 

You can pay yourself a salary (not really a salary but a owners draw) from this account. The amount you draw plus any leftover in the business account yearly is what you pay tax on. So you can easily control the amount of reportable income yearly.

 

You should pay some tax...and it a good idea to pay quarterly estimated taxe(there is an simple IRS form for this too) to avoid needing a larger sum on 4/15, and to avoid penalties.

 

You should pay some tax because its the right thing to do for our country and for other reasons that benefit you like establishing your credit worthyness, or showing a history which will help in forming other future business's,

[eastbayguy]

>I hope the escorts will respond and enlighten us on how

>business is done. I'd love to hear how they launder their

>money.

 

Personally, I'd refrain from answering. I've done some financial planning for a couple of escorts in the past. A few people in the biz have actually saved significant money as escorts. How they sheltered these funds from the IRS is rather clever. In these post 9/11 times, I seriously doubt you could still accomplish what they did, the way they did it.

 

No, I'm not a financial planner, I'm just cautious with my own funds. Over the years, I've accumulated a tidy nest egg. In the past, I used to teach a class on financial management at a particular community center.

 

--EBG

[Guest MuscleCruzer]

Good explanation thanks . . .

[Guest MuscleCruzer]

>Based on my experience there, here are some of the things that

>I feel could be problematic IF the escort were involved in an

>audit.

 

How likely is it that an individual is audited these days? Unless there is some red flag. I always thought unless the IRS could recover alot of unpaid tax it wasn't worth their while to go through the audit process. Any thoughts?

 

>

>[li]Unexplained Income: Numerous cash deposits to

>checking or savings accounts, even if they are under the

>federal reportable limit, raise eyebrows.

 

Hmmm what about stricly cash businesses like carwashes and laudrymats? They have multiple cash deposits are they suspect? I'm not arguing with you, just trying to get a handle on what is a red flag.

 

>

>[li]Missing Expenses: A checking account that does

>Not include rent/mortgage, utilities, car

>payment, food, gas, etc. is suspect. The IRS will question how

>those items are paid for. So, using escort money to purchase

>money orders and pay for "necessities", is not a good idea.

 

I've always heard that it's best to purchase groceries in cash that way if the pattern is set . . . no one can prove or disprove what amount is spent for food.

 

>

>[li]Unexplained Purchases: Saving money under the

>mattress and purchasing big ticket items (cars, computer,

>furniture, clothes, travel, etc.) with cash also raises

>eyebrows.

 

That makes alot of sense . . .

>

>If I were working under-the-table, I'd take great care on how

>the money was spent. For example, I would still use

>check/credit card for gasoline purchases on every other tank

>of gas. I'd ensure that checks were written at the grocery

>store at least once a month.

 

See response above . ..

 

>How are you going to

>account for payments being made in cash? In most businesses

>that is not the "normal" way of doing things and would raise

>major questions.

>

Well there is the carwash and laundrymat and guys who mow lawns or snow plow, but I suppose we would have to come up with a personal services business that usually pays in cash.

 

>I'd love to hear how they launder their money.

 

They may prefer the term "sheltering their assets" :-)

 

thanks so much for your response !!

[seaboy4hire]

MuscleCruzer you said the boy has a day job so he is already paying taxes so I don't really see the problem here. He has reportable income already so he is in the free and clear as far as I see things. I also have a day job and do this on the side. If by chance I were to be audited I have my w-2 forms and such to show that I had steady taxable income. If they were to ask where my other cash deposits to my bank were coming from I would probably simply tell them from family as for awhile I was a student and students tend to be on the poor side. Of course this all would be a different story if the lad you know was escorting fulltime but he isn't so I don't think he has anything to worry about.

 

Hugs,

Greg

 

Greg Seattle Wa [email protected]

http://www.male4malescorts.com/reviews/gregseattle.html http://briefcase.yahoo.com/seaboy4hire

[N.N.]

I've seen the topic of taxes come up here from time to time.

The discussion tends to focus on personal wants and fears:

will I get audited, will I have a decent credit rating, and

so on. I've seen very little discussion of paying taxes on

principle--out of a desire not to be a freeloader.

[OneFinger]

>...Well there is the car wash and Laundromat and guys who mow lawns or snow plow, but I suppose we would have to come up with a personal services business that usually pays in cash.

 

I totally agree that there are cash-only businesses such as the car wash, Laundromat, etc. But most of these businesses, even lawn care and snow plow services, have a business license which adds to their legitimacy.

 

In addition, even with the car wash, there are usually receipts, invoices, cash register tapes, or equipment logs to show the amount of business that was done. When I've hired lawn care and snow removal services there has always been a monthly invoice showing credits for payments and debits for services rendered.

 

In the escorting business there is usually no business license, invoices, receipts, or usual evidence of an actual business. However, an escort who is also a masseur, could funnel their money through a legitimate business.

 

Perhaps the chance of an audit is minimal for escorts who have a day job and other reportable income. But I do know there are some deductions that raise red flags with your return and may put you at greater risk for an audit. One of those is the home business where you deduct part of your home as a business expense. Another example is "consulting" work where profits or reportable income is minimal.

 

I've never been through an audit. But, the auditees I have known say it is one of the worst experiences of their lives.

[Bilbo]

You do not have to have a DBA in order to file a Schedule C.

 

Do they really check to see what form you deposit your money in? Check or cash?

 

There are some personal services which are usually paid for in cash, though occaisionally in check. Such as licensed massage or hair dressing. And if you study and get a license in either of those particular ones, for example, you would have a readily explainable income and also a fall back career in case either your escorting or your next career, should you decide to change jobs, go into lean times.

 

How about being a street artist, like a painter or a musician? I don't know how much a pro in either of those professions makes compared to how much you need to explain to Schedule C, so that might be a problem.

 

As an actor (and isn't this in many ways another theatrical performance) and as a C&A Healer (and, again, this is a natural adjunct anyway) I have never had any need for any other way to explain income. Nor has the IRS ever asked me about the difference between cash and checks. I know that they look at my numbers occaisionaly because they have in the past A. corrected them and sent me a refund and B. insisted that I apply for EIC.

[woodlawn]

> If they

>were to ask where my other cash deposits to my bank were

>coming from I would probably simply tell them from family as

>for awhile I was a student and students tend to be on the poor

>side.

 

And then they would ask whether the family members who made those gifts to you paid the federal gift tax.

 

The chance of any particular individual being audited in any given year is tiny, as IRS audits only a tiny fraction of the total number of taxpayers each year. Statistics show, however, that having a modest income does NOT reduce your chances of being audited. Anyone who thinks only high rollers are likely to be audited is quite wrong.

 

An earlier poster gave good advice: set up a checking account for your business, use it to pay expenses, report your income correctly. The best way of keeping IRS off your case is to make sure you file timely returns on which the numbers match the returns that other entities (such as your bank) may be filing with regard to you.

[BigK]

You do need a DBA to open a business checking account which I suggested as a simple way to keep the books.

[BigK]

>

>And then they would ask whether the family members who made

>those gifts to you paid the federal gift tax.

>

 

 

As long as the "gifts" are under $11,000 per gift giver no federal gift tax returns need to be filed.

[BigK]

>>

>[li]Unexplained Income: Numerous cash deposits to

>checking or savings accounts, even if they are under the

>federal reportable limit, raise eyebrows. The IRS will demand

>to know the source of the income and proof that tax was paid.

>(While the IRS may not suspect escort activity, they will

>definitely think "drug activity" and will actively pursue the

>source of the income.)

>

>I'd use the extra cash for untraceable/consumable stuff such

>as eating out while at home, theatre tickets, concerts, and

>similar items.

>

 

 

Don't see the problem with cash deposits. Don't deposit extra cash in the checking account. A good way to hold extra cash is become a member of AAA where you can exchange cash for travelers checks at no cost. Store the travelers checks in a safe place...like a safe deposit box...and keep a seperate file with Check #'s listed and cross off whenever you cash one.

 

You can buy $500 & $1,000 travelers checks.

[imrthr]

>

>

>Don't see the problem with cash deposits. Don't deposit extra

>cash in the checking account. A good way to hold extra cash

>is become a member of AAA where you can exchange cash for

>travelers checks at no cost. Store the travelers checks in a

>safe place...like a safe deposit box...and keep a seperate

>file with Check #'s listed and cross off whenever you cash

>one.

>

>You can buy $500 & $1,000 travelers checks.

 

__________________________________________________________________

DO NOT FOLLOW THIS ADVICE OR SUGGESTION - - - IT COULD BE A BIG PROBLEM FOR YOU IF YOU DO.

 

Go to http://www.irs.gov and click on "suspicious monetary transaction reports" - - - -

 

Here is an excerpt from the U.S. Government site:

 

New Suspicious Activity Report Form Now Available for Money Service Businesses

 

Headliner Volume 30

November 26, 2002

 

A new Suspicious Activity Report (SAR) form is now available for Money Service Businesses. Money Service Businesses must stop using the interim Bank SAR (Form TD F 90-22.47) and start to report suspicious activity using the new SAR-MSB form.

 

Who Must File a SAR

The Bank Secrecy Act requires certain money service businesses (MSB) to report suspicious activity. The MSBs required to report suspicious activities are:

 

Money transmitters

Money order - issuers, sellers and redeemers

Travelers check - issuers, sellers and redeemers

U. S. Postal Service

Any other MSB may voluntarily file a report of suspicious activity.

 

When to File a SAR

A SAR must be filed when a transaction or pattern of transactions conducted by, at or through the MSB is both suspicious and $2,000 or more.

 

MSBs must file the form within 30 days after becoming aware of a suspicious transaction.

 

Disclosure Prohibited

MSBs and their employees are prohibited from disclosing to a person involved in the transaction that a suspicious activity report has been filed.

 

_________________________________________________________________

 

Notice that the wording in the citation reads "transaction or a pattern of transactions" - Also notice that the amount accumulation is only $2,000.00. In other words, when all the money orders or travellers checks you buy and/or cash accumulate to $2,000.00, a report is mailed to the Internal Revenue Service about you. Worse yet, you will not be informed by the company that reports you.

 

Companies (including AAA) must keep a record of travellers checks sold and redeemed. The names of the redeemer or purchaser of the travellers checks together with the identification used are stored in a computer program for easy access. This makes the pattern easy to recognize for reporting purposes.

 

Just a word of caution - - - -

[imrthr]

>

>

>Don't see the problem with cash deposits. Don't deposit extra

>cash in the checking account. A good way to hold extra cash

>is become a member of AAA where you can exchange cash for

>travelers checks at no cost. Store the travelers checks in a

>safe place...like a safe deposit box...and keep a seperate

>file with Check #'s listed and cross off whenever you cash

>one.

>

>You can buy $500 & $1,000 travelers checks.

 

__________________________________________________________________

 

 

DO NOT FOLLOW THIS POSTER"S ADVICE OR SUGGESTION - - - IT COULD BE A BIG PROBLEM FOR YOU IF YOU DO.

 

Go to http://www.irs.gov and click on "suspicious monetary transaction reports" - - - -

 

Here is an excerpt from the U.S. Government site:

 

New Suspicious Activity Report Form Now Available for Money Service Businesses

 

Headliner Volume 30

November 26, 2002

 

A new Suspicious Activity Report (SAR) form is now available for Money Service Businesses. Money Service Businesses must stop using the interim Bank SAR (Form TD F 90-22.47) and start to report suspicious activity using the new SAR-MSB form.

 

Who Must File a SAR

The Bank Secrecy Act requires certain money service businesses (MSB) to report suspicious activity. The MSBs required to report suspicious activities are:

 

Money transmitters

Money order - issuers, sellers and redeemers

Travelers check - issuers, sellers and redeemers

U. S. Postal Service

Any other MSB may voluntarily file a report of suspicious activity.

 

When to File a SAR

A SAR must be filed when a transaction or pattern of transactions conducted by, at or through the MSB is both suspicious and $2,000 or more.

 

MSBs must file the form within 30 days after becoming aware of a suspicious transaction.

 

Disclosure Prohibited

MSBs and their employees are prohibited from disclosing to a person involved in the transaction that a suspicious activity report has been filed.

 

_________________________________________________________________

 

Notice that the wording in the citation reads "transaction or a pattern of transactions" - Also notice that the amount accumulation is only $2,000.00. In other words, when all the money orders or travellers checks you buy and/or cash accumulate to $2,000.00, a report is mailed to the Internal Revenue Service about you. Worse yet, you will not be informed by the company that reports you.

 

Companies (including AAA) must keep a record of travellers checks sold and redeemed. The names of the redeemer or purchaser of the travellers checks together with the identification used are stored in a computer program for easy access. This makes the pattern easy to recognize for reporting purposes.

 

Just a word of caution - - - -

[woodlawn]

>As long as the "gifts" are under $11,000 per gift giver no

>federal gift tax returns need to be filed.

>

 

If an escort is not earning more than $11,000.00 from his work in a year's time I don't know why he would bother. He could make more than that working at Wal-Mart and get some benefits as well.

[BigK]

AAA tells me they report $3,000 & over. Has the amount been reduced?

[Guest MuscleCruzer]

i think the issue is that these are temp jobs for which he will receive w-2's, but the income isn't enough to cover his monthly expenses, so he needs to report some self-employment income at least to the extent of his expenses. If none of the escorting income is reported, then there is an issue with qualifying for a home loan, car loan, etc.

[BigK]

>

>>As long as the "gifts" are under $11,000 per gift giver no

>>federal gift tax returns need to be filed.

>>

>

>If an escort is not earning more than $11,000.00 from his work

>in a year's time I don't know why he would bother. He could

>make more than that working at Wal-Mart and get some benefits

>as well.

>

 

Its a matter of how much is saved, not earned. The $11,000 could come from multiple givers. My primary suggestion is not to deposit the excess cash in the checking account. None of this if fool proof. The best thing to do is declare all your income. I am just recognizing the reality that that is not what people are likely to do.

[Guest MuscleCruzer]

how true . . .

 

I really think when someone is pulling in numbers like some of these escorts do ($100,000-$200,000) you have to report a good chunk of the earnings in order to enjoy the fruits of your labor without alot of hassle. Yeah, it means paying income tax . . . but then you can hopefully stop looking over your shoulder and enjoy it.

[Bilbo]

No argument there, just a clarification on both sides.

[woodlawn]

>>

>>>As long as the "gifts" are under $11,000 per gift giver no

>>>federal gift tax returns need to be filed.

>>>

 

>>If an escort is not earning more than $11,000.00 from his

>work

>>in a year's time I don't know why he would bother. He could

>>make more than that working at Wal-Mart and get some

>benefits

>>as well.

 

 

>Its a matter of how much is saved, not earned. The $11,000

>could come from multiple givers.

 

So you would suggest he involve several family members in this ruse, all of whom would have to be coached to tell IRS the same lies in case they are asked? You are advising someone to engage in a complex criminal conspiracy for the sake of avoiding tax on what is probably a very modest amount of money. I'd much rather get a deficiency notice from IRS for failing to pay tax on part of my income than get a criminal referral to the US Attorney for perjury and conspiracy.

 

> The best thing to do is declare all your

>income. I am just recognizing the reality that that is not

>what people are likely to do.

 

I understand what you're saying, but I would not advise people to commit serious crimes in order to conceal relatively minor ones -- if Martha Stewart hadn't done that, she probably wouldn't be facing a prison term today. I think one should tell people what the best course of action is, and if they choose not to follow it the consequences are on their head.

[FrancoDiSantisxxx]

The Proverbial Ten Foot Pole

 

In the classic tradition of this site, you have received a lot of opinions, nearly all from members of this site who are not clients. I have a few suggestions for your friend: (1) this topic has been discussed before on this site, some of those threads were both more responsive and would benefit you or him to search for and read; and (2) if he were making in the range of $100K, who could easily pay cash or put his downpayment on a home in cash. I hate to disabuse you or any other client of that notion, but while some escorts do extremely well, in my opinion, based on the many escorts I know and have met, very few ever reach that range. Notwithstanding this, if he is making sufficient funds that he wishes to be credited for them, he will need to do the paperwork and consult some competent tax professionals. I know any number of people, myself included, who report their income, in a variety of ways; these individuals use an accountant and some use a tax attorney.