How do providers report their money?

[MeatHead]

How are you able to earn your income and still rent an apartment without any source of income to show the lardlords (for example)? This question goes to those that escort as a full time job of course. 

[Guest]

You should tag the IRS in this post. Maybe you’ll get more answers quicker. 

[maninsoma]

I'd be surprised if any escort attempted to hide all of their income by neglecting to file tax returns and pay taxes, so wouldn't the answer about how they demonstrate income be the same as any other self-employed person?

[MeatHead]

1 hour ago, maninsoma said:

I'd be surprised if any escort attempted to hide all of their income by neglecting to file tax returns and pay taxes, so wouldn't the answer about how they demonstrate income be the same as any other self-employed person?

Thanks. I never thought about it and it's true. But don't you have to report the source of income? Self-employment just sounds vague. Also, when you deposit certain amount of money in the bank, don't you have to report the source too? I know I might sound ignorant.

[+ Vegas_Millennial]

There have been several threads where some upstanding escorts from the United States state they follow all of the tax rules and report their income and pay Social Security and income taxes, as well as fund a Roth IRA.  For the state business license, there's probably a vague "consultant" category, or even a psychic or other self employed occupation which doesn't have a regulatory board.

Just remember... The mob wasn't found guilty of operating illegal business activity related to drugs, liquor, gambling, or prostitution.  They were imprisoned for tax evasion.

Edited December 25, 2022 by Vegas_nw1982

[+ sniper]

There are lots of self employed people in the country who perform various services that don't require specialized licenses or naming your clients. Seems it should be fairly straightforward to pick ome and run with it(consulting?).

Edited December 25, 2022 by sniper

[maninsoma]

No, one doesn't need to provide the names of people who are paying for your services.  For example, there's no way a psychotherapist could do that and not run afoul of confidentiality laws.

[+ ThroatCummer]

"Illegal activities. Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Schedule 1 (Form 1040), line 8z, or on Schedule C (Form 1040) if from your self-employment activity."

Right from Publication 525 and the 1040 instructions. The last sentence basically calls out sex workers. LOL. The IRS fully expects every person in this country to evaluate every single dollar that passes through their hands and either pay appropriate tax on it or find out where it is excluded from the laws. Escorts should be reporting their gross receipts (total cash received), and deducting expenses like for lube and that stuff separately. 

Now... in practice. 👀

[56harrisond]

One provider I see operates a yoga studio. So clients pay for a yoga session, and any additional cash exchanged (as a tip) is up to him to declare -or not.

[dbar123]

In the future, it looks like providers who use Venmo and PayPal will be forced into filing.

[Kevin Slater]

14 minutes ago, dbar123 said:

In the future, it looks like providers who use Venmo and PayPal will be forced into filing.

There's already a discussion of that here. 

Kevin Slater

[Gatlin G]

Correct.  Pretty soon the IRS will require Venmo, PayPal and places like that to report using Form 1099-K those who earned (received) over $600.  eBay, Etsy, Airbnb and escorts watch out.  Was supposed to happen in 2023 but looks like now it will be Spring 2024.  

[+ ThroatCummer]

Despite the negative news surrounding FTX and whatever your thoughts are on cryptocurrency, the fact remains it is a mostly anonymous network that allows anyone in the world to transmit money instantly to anyone, without any trusted third party, as easily as sending an e-mail. It would behoove providers to get on board (e.g., have a mobile wallet and receiving address; advertise that digital currency is accepted) as the focus on traditional payments gets tighter and tighter over the coming years. 

[Kevin Slater]

57 minutes ago, ThroatCummer said:

Despite the negative news surrounding FTX and whatever your thoughts are on cryptocurrency, the fact remains it is a mostly anonymous network that allows anyone in the world to transmit money instantly to anyone, without any trusted third party, as easily as sending an e-mail. It would behoove providers to get on board (e.g., have a mobile wallet and receiving address; advertise that digital currency is accepted) as the focus on traditional payments gets tighter and tighter over the coming years. 

Or just pay your taxes.

Kevin Slater

[CJK]

On 12/24/2022 at 6:29 PM, maninsoma said:

I'd be surprised if any escort attempted to hide all of their income by neglecting to file tax returns and pay taxes, so wouldn't the answer about how they demonstrate income be the same as any other self-employed person?

 

On 12/24/2022 at 7:56 PM, nycboi said:

Thanks. I never thought about it and it's true. But don't you have to report the source of income? Self-employment just sounds vague. Also, when you deposit certain amount of money in the bank, don't you have to report the source too? I know I might sound ignorant.

 

On 12/25/2022 at 8:01 AM, maninsoma said:

No, one doesn't need to provide the names of people who are paying for your services.  For example, there's no way a psychotherapist could do that and not run afoul of confidentiality laws.

Prior to 2007, self-employment income would be verified for something like a mortgage by having the potential borrower provide a copy of his tax returns. People started filling out fake tax returns to show fake income.

Lenders started pulling tax transcripts to ensure what was handed to them was the actual return, so fraudsters started filing fake amended tax returns showing inflated income. Borrowers would often create a fictitious business and fill out Schedule C. These became known as hair-braider loans after a frequently used sole-proprietor type. The lender would pull the transcript, the figures would match. By increasing the income, the taxpayer would owe more tax, but the IRS would allow a payment plan. After the loan was granted, the borrower would file another amended return bringing the income back down and wiping out the additional taxes.

Lenders caught on and would not grant loans where there were amended returns without proof there was no increase in income and pulling transcripts up to six months after the loan closed. But the problem still existed. 

So now lenders require proof that the borrower engages in the proclaimed business. For example, with a therapist, a state license and a check with 411 to see if there is s telephone listing might work. With a hairdresser, the license and a copy of a published ad. Heck, once a plumber provided a picture of the side of his truck which showed the business name and contact information. A stripper might provide a letter from the strip club owner on letterhead, which would then be independently verified by looking up the club's phone number and business license followed by calling to get telephone verification. 

Edited December 27, 2022 by CJK

[Kevin Slater]

35 minutes ago, CJK said:

 

 

Prior to 2007, self-employment income would be verified for something like a mortgage by having the potential borrower provide a copy of his tax returns. People started filling out fake tax returns to show fake income.

Lenders started pulling tax transcripts to ensure what was handed to them was the actual return, so fraudsters started filing fake amended tax returns showing inflated income. Borrowers would often create a fictitious business and fill out Schedule C. These became known as hair-braider loans after an frequently used sole-proprietor type. The lender would pull the transcript, the figures would match. By increasing the income, the taxpayer would owe more tax, but the IRS would allow a payment plan. After the loan was granted, the borrower would file another amended return bringing the income back down and wiping out the additional taxes.

Lenders caught on and would not grant loans where there were amended returns without proof there was no increase in income and pulling transcripts up to six months after the loan closed. But the problem still existed. 

So now lenders require proof that the borrower engages in the proclaimed business. For example, with a therapist, a state license and a check with 411 to see if there is s telephone listing might work. With a hairdresser, the license and a copy of a published ad. Heck, once a plumber provided a picture of the side of his truck which showed the business name and contact information. A stripper might provide a letter from the strip club owner on letterhead, which would then be independently verified by looking up the club's phone number and business license followed by calling to get telephone verification. 

That explains a lot.  For each of my rental property purchases, the mortgage process got increasingly invasive.  I would have thought seeing my 1040 with all its schedules (and verifying that it was the same as filed with the IRS) would be enough, but this makes sense.  It's also why I recently declined to pick up a fourth property-- they were already greasing up the probe. 

Kevin Slater

[+ nycman]

1 hour ago, Kevin Slater said:

they were already greasing up the probe. 

You say that like it’s a bad thing….

grin

[+ GoingGood]

What about cash deposits? Will banks have to report cash deposits over $600?

[CJK]

1 hour ago, The Big Guy said:

What about cash deposits? Will banks have to report cash deposits over $600?

The reporting requirement is widely misunderstood. 

• Banks need to report any single deposit or withdrawal over $10k, but that does not relieve the bank from reporting certain deposits below that amount. This includes both cash and negotiable instruments involving a customer who does not usually deal with large amounts of money. (The grocery store likely deposits large amounts daily and does not need to be reported, but some guy who usually has $7500 direct deposited from work each month who suddenly shows up with a $15,000 check does.)
• Cumulative cash deposits within one year in excess of $10k must be reported. This means the bank customer who deposits $500 2x/mo for a year must be reported. This would likely include most full-time providers. 
• Any suspicious deposits below $10k must be reported. Because the penalties to the bank can be quite high and reporting is relatively easy, banks err on the side of caution and report many more cash deposits than you would think. 

[+ DrownedBoy]

11 hours ago, The Big Guy said:

What about cash deposits? Will banks have to report cash deposits over $600?

I mentioned this in a different thread, but banks will often report withdrawals of amounts muuuch less than 10k. CYA.

[Thomas_Belgium]

21 hours ago, arnemgreeves said:

I don't know how it works in the USA. BUt in Europe, where for the most part it's legal or semi-legal, it's often common to register as self-employed. I think when they apply for loans or bank accounts they say "entertainer" or "masseur" as not to arose any suspicion, even though it's not illegal per se...

In the Netherlands & Belgium it's just "sexworker".

[kevininsa]

From a former IRS employee.  The IRS doesn't care what you do as long as you report it. They do not communicate any illegal acts to anyone because they want you to accurately report.  Technically, an assassin could file a Schedule C, say they are an assassin and even deduct their ammo expenses and the IRS wouldn't care.  The tax examiners would even get a laugh out of it.  But if you're concerned, just put down Masseur or Consultant.  

[Kevin Slater]

27 minutes ago, kevininsa said:

From a former IRS employee.  The IRS doesn't care what you do as long as you report it. They do not communicate any illegal acts to anyone because they want you to accurately report.  Technically, an assassin could file a Schedule C, say they are an assassin and even deduct their ammo expenses and the IRS wouldn't care.  The tax examiners would even get a laugh out of it.  But if you're concerned, just put down Masseur or Consultant.  

Although, interestingly, drug dealers are statutorily prohibited from deducting business expenses other than cost of goods sold.

Kevin Slater

[Thomas_Belgium]

3 hours ago, arnemgreeves said:

Good for the Netherlands and Belgium. And?

Nothing to add. Sorry if you find my reply not useful.

[Simon Suraci]

The IRS requires you to report holdings in cryptocurrencies. You can lie about your crypto holdings, but the government can easily find out what you hold once you are being audited, or if law enforcement has a warrant. They may not get you this tax year, or even next, but they will eventually. If you’re flagged for any reason, the IRS can track it down and penalize you for not reporting or paying taxes.

The block chain is only quasi anonymous at best, when nobody is investigating you. When you are a person of interest, your transactions are as public as a street sign, and your actions are recorded longer and clearer than any traffic cam. Those transactions can be linked back to you. A street sign you can destroy, deface, or steal. You can’t erase or obscure the digital ledger.

Cash is king.