How do you report your anual earnings as an escort?

[MeatHead]

My escort friend only worked as a provider the whole year and he wants to know how to report the earnings for the income tax to be able to get a refund. The earnings were a combination of electronic transactions and cash money according to him. He is new to the business and need some orientation. I will pass him the thread's link so he can read the replies (he doesn't have an account here yet). Thanks in advance. 

[+ augustus]

The electronic transactions should be reported.  Up to him on whether he wants to report the cash income.  Put down self-employed or massage therapist or physical therapist as the occupation.  

[Kevin Slater]

All earnings should be reported on a schedule C (profit or loss from business).  Business expenses go on the same form

Kevin Slater

[MeatHead]

9 hours ago, augustus said:

The electronic transactions should be reported.  Up to him on whether he wants to report the cash income.  Put down self-employed or massage therapist or physical therapist as the occupation.  

Does the IRS find out whether the occupation listed in real or not? Does putting down the cash income  makes a difference? 

[Kevin Slater]

45 minutes ago, socurious said:

Does the IRS find out whether the occupation listed in real or not? Does putting down the cash income  makes a difference? 

The IRS doesn't really care the source of the income, just that you claim it.  They do not differentiate between cash and other forms of payment; it's all taxable.

Kevin Slater 

[MeatHead]

13 minutes ago, Kevin Slater said:

The IRS doesn't really care the source of the income, just that you claim it.  They do not differentiate between cash and other forms of payment; it's all taxable.

Kevin Slater 

I'm surprised.

And it also looks like anybody can put any amount for what they made in the year. That makes a difference for how much you get for refund. 

[pubic_assistance]

11 hours ago, socurious said:

he wants to know how to report the earnings for the income tax to be able to get a refund.

Well ...unless he's been paying a quarterly estimated income tax, he's not getting a "refund".  You only get a refund if your actual income is less than your estimated income deductions by an employer (or installments if you're self employed).

[+ Vegas_Millennial]

42 minutes ago, socurious said:

And it also looks like anybody can put any amount for what they made in the year.

That's why: 

1. It's important for society for us all to be honest.

2.  There is a high price to pay as a penalty for failure to report all cash income on your taxes, when caught.

Your friend should keep a log of how much money earned each day, to help him with a future IRS audit or court case.  His log should be truthful, and match what he reports as his income. 

It's no different than owning any store that accepts cash.

Edited October 9, 2024 by Vegas_Millennial

[pubic_assistance]

12 minutes ago, Vegas_Millennial said:

That's why: 

1. It's important for society for us all to be honest.

2.  There is a high price to pay as a penalty for failure to report all cash income on your taxes, when caught.

Well...

Thank you for that sermon.

In REALITY: most businesses that take a lot of cash, do NOT report 100% of their cash income.

Although I do appreciate the ideology of being honest. When it comes to the Government ...your "honesty" needs to be modified to avoid being fleeced.

When you have mixed income (credit cards, checks and cash) or when you are an ALL cash business...what you do is look at what you SPENT...and report THAT. Because that's what they look at if you're ever audited by the IRS.

You never want to be in a situation where you claimed an income of $30k but you spent (on record) $45k  that year. That's a red flag for an IRS investigation.

And to be clear, I'm not talking running up your credit card. If you haven't paid down that credit, you didn't actually spend it. I mean whatever they see coming through your accounts as cash you had...they wanna see that (at minimum) on your report.

Your friend should also be aware there's a minimum income bracket below which no taxes are owed. Above that point, if he can't make business deductions to cover the excess, then he's going to OWE taxes, not "get a refund".

 

Edited October 9, 2024 by pubic_assistance
spelling

[+ Vegas_Millennial]

1 hour ago, socurious said:

I'm surprised.

And it also looks like anybody can put any amount for what they made in the year. That makes a difference for how much you get for refund. 

Another advantage of honestly reporting your income: 

Qualifying for a mortgage or rent.  Most applications will want to see your income tax return.  If you report less than what you actually earned, you won't qualify for that home or apartment. 

But as @pubic_assistance wisely pointed out:  your friend won't get any refund unless he's overpaid his estimated quarterly taxes throughout the year.  Be sure your friend is paying estimated quarterly taxes, so he's not hit with a big penalty come tax filing time.

[Kevin Slater]

4 hours ago, pubic_assistance said:

 

Your friend should also be aware there's a minimum income bracket below which no taxes are owed. 

 

No income taxes are owed, but the self-employment tax (FICA, which covers medicare and social security) starts at 15.2% from the first dollar of profit.

Kevin Slater

[+ augustus]

7 hours ago, pubic_assistance said:

In REALITY: most businesses that take a lot of cash, do NOT report 100% of their cash income.

True that!  You have to be careful though.  The IRS will look at wholesaler's records and see if the retailer has reported, or not, all their sales.  In my state, bars are only supposed to buy their inventory from a wholesaler.  When the state started an audit a few years back based on what the bars claimed was their sales income and matched it against what they purchased from the wholesalers many of the bars were hit with a big tax bill and penalties.  They even estimated how many glasses of beer a keg would produce. 

[MeatHead]

9 hours ago, pubic_assistance said:

Well ...unless he's been paying a quarterly estimated income tax, he's not getting a "refund".  You only get a refund if your actual income is less than your estimated income deductions by an employer (or installments if you're self employed).

Totally lost here. I wish I can explain to him. 

[MeatHead]

Receiving money from relatives (lend money) counts as money you make? Because in my case, I didn't report a large amount of that last year. It was likely less than 1.5k though. 

[MeatHead]

If you forgot to report some money last year, can you report it on the next income tax? 

[KeepItReal]

39 minutes ago, socurious said:

If you forgot to report some money last year, can you report it on the next income tax? 

An accountant would likely advise you to amend your return for the current year and resubmit. You should not commingle this year with next year. 

[pubic_assistance]

1 hour ago, socurious said:

Totally lost here

Yes.

You do seem to not understand how taxes work.

[Kevin Slater]

2 hours ago, socurious said:

Totally lost here. I wish I can explain to him. 

Yeah, it doesn't sound like you're the one to be helping him out here.

Kevin Slater

[+ azdr0710]

I'm still laughing at the guy's attempt to get a 'refund' when apparently not one cent was paid in estimated taxes.......(!)......... as said above, he may want to file and report at least the electronic transactions (auto-reported to the IRS?) so he can see how much he OWES!!........

 

[MikeBiDude]

3 hours ago, Kevin Slater said:

Yeah, it doesn't sound like you're the one to be helping him out here.

Kevin Slater

He’s Asking for a friend 😉

[+ Vegas_Millennial]

6 hours ago, socurious said:

Totally lost here. I wish I can explain to him. 

For young beginners:

 

 

[mike carey]

6 minutes ago, Vegas_Millennial said:

For young beginners:

 

 

OUTRAGEOUS!!

The map in that video showed New Brunswick and Nova Scotia as parts of the US.

[+ Vegas_Millennial]

29 minutes ago, mike carey said:

OUTRAGEOUS!!

The map in that video showed New Brunswick and Nova Scotia as parts of the US.

U.S. Geography isn't typically taught until the 2nd grade.  This is 1st grade level introduction to taxes.  No math involved.  It's just the concept that taxes are are something you pay, not something you get.

Our friend @socurious should tell his friend that a tax "refund" only happens when a person pays too much taxes throughout the year via their paycheck withholdings (if working for a company) or through quarterly payments (if a self-emoloyed escort).  It is also very possible that a person ends up owing taxes at the end of the year if his paycheck deductions or quarterly payments were too little, and maybe even charged a penalty if the amount owed is too great.   It is the person's responsibility to make sure he is making adequate tax payments throughout the year to avoid the penalty.

[mike carey]

32 minutes ago, Vegas_Millennial said:

U.S. Geography isn't typically taught until the 2nd grade.  This is 1st grade level introduction to taxes.

Yes, I knew that!! Perhaps I should have added a smiley emoji!

[chitownguy]

13 hours ago, socurious said:

Totally lost here. I wish I can explain to him. 

If you are self employed you are suppose to make quarterly estimated tax payments.  You estimated what your income will be for the year and calculate what the tax (federal income tax and self employment tax) would be on that income.  Each quarter you send 25% of that estimated tax to the IRS.  When you file your tax return if the actual tax you owe is greater than the estimated payments you made you have to pay the difference.  And most likely an underpayment penalty.  That penalty can be significant.  Particularly if you never made any quarterly payments.

Taxes can be complicated and confusing.  I would advise your friend to seek advice from a good tax accountant.