Creative Finances

Ok, new thread on hypothetical situations with money.

I'm new at this and haven't started making any money yet, although I have spent enough on photos, websites, and soon advertising. But, once I get my first job and start making a living, I plan on paying taxes.

But, let's just say I wanted to be an outlaw, how could the I.R.S. prove that the cash I got was from contracted work and not just cash gifts from my friends and lovers?

Reading the thread on SB/SD got me thinking. Do these sugar babies pay taxes on the cash gifts and non-cash gifts (like cars, houses, clothes, etc.) Where do we draw the line on gifts vs income?

If a client over pays me is the extra green in the envelope considered a tip and therefore I need to report it, or is it a gift? What about if the client gives me a gift card to Victoria's or gives me jewelry with the white envelope?

Also, if I did want to buy a big item like a house, but didn't want to make enough in income to push me into a higher tax bracket, would it be better to have a client that is already in a top tax bracket buy it for me and I pay him back with my time or cash gifts from other friends?

What about offshore companies that I might own buying me a house, could the ownership of the house be traced back to me?

Just wondering. And don't worry, I'm planning on paying the gov. all they are entitled.

Here is the big thing to remember about the IRS. If you are living in a lifestyle that cannot be explained by your income, you are going to have a problem.

I've a good friend who learned this lesson in 1995. She was a dancer and claimed a very modest percentage of her earnings. Problem was, she lived in a beautiful condo and drove an expensive vehicle, not to mention her extensive clothing collection. A jilted lover reporter her to the IRS and she was audited. She finally paid back all the penalties, fees, and interest in 2003.

Its easy to stay under the radar with them. But once you make the slightest blip, your ship is sunk.

But, let's just say I wanted to be an outlaw, how could the I.R.S. prove that the cash I got was from contracted work and not just cash gifts from my friends and lovers?

. Originally Posted by Nicolette Bordeauxva

They don't have to prove it, you have to disprove it.

Where is our tax resident when ya need him? Buttzilla is your man behind the curtain on questions such as these. Take'em off line would be my suggestion.

Thank goodness i'm legally committed to someone and only have to worry about decorating the summer house.

Depending on the nature of the SB relationship you may be able to claim it was a "gift" vs. earned income. You should note that a gift of over a certain amount (I think $13,000/year) creates tax implications for the gift giver. Interestingly one exclusion to the gift tax rules are monies paid directly for education or medical bills. So if you directly write a check to Harvard for your SB's tuition, it doesn't count against the cap.

"An envelope for an afternoon" is earned income regardless of how much is in the envelope.

And yes...as WTF points out...the burden of proof is on you to show where your source of support is from, as in "so you claimed x as income but your mortgage alone is 2x, where did that $ come from?"

Disclaimer: consult a tax attorney, I'm just a lay person that has encountered some of these situations.

Disclaimer: consult a tax attorney, I'm just a lay person that has encountered some of these situations. Originally Posted by atlcomedy

As a side note, as a result of our economy over the last few years, there are a lot of "funny looking" tax returns, where you have claimed income & deductions that look out of kilter. Nothing wrong with that, you just need to be able to explain it.

It's easy to set yourself up as a DBA. That could be anything from pet sitter to appointment setter...then all you have to do is claim a reasonable amount to cover your bills. Get a PO box as your "business address", open a business account, and keep some of your cash in a safe deposit box.

Get a good CPA...it may cost around 100 bucks a month, but it's worth it! I think you can claim cash gifts up to 10,000 before you are taxed.

Pay cash for everything...Target, grocery store, car repairs...it feels kinda ghetto at first, but at least there is not a paper trail

Big purchases (like a house) is another story. You will have to claim that under your DBA and pay taxes, but at least you still look legit...no one will question your DBA. Just don't make over the top deductions like nails, hair and clothes, LOL

I think you can claim cash gifts up to 10,000 before you are taxed.
Originally Posted by Nicole Preston

you don't need to "claim" gifts of any amount....if they exceed a threshold from a single giver, they create implications for the giver....you can recieve an unlimited amount of gifts without any tax consequences for you....the key is they must be legitimate gifts....& I don't mean the "donation" you see in quotes in an escort ad....

I think the gift limit is 12,000 per year from any one person. Beyond that either the recipient or the giver has to pay taxes.

Mind you, a bank is required to report any deposit greater than $8K in a single transaction

If you have to ask how to fuc the IRS you better not try!

Also, they are looking for money under rocks.

We benefited from the IRS coming down heavy handed in the late nineties and congress kicked them in the balls. With a bad economy the IRS is ramping up and the game is changing.

Beware.

Dont worry it is really not as bad as it sounds .One of the benefits that will come from paying your taxes is at least then you can do a lot more with your money.Without proof of income it is way too difficult to qualify for a loan.A few years ago they were giving loans out to just about everyone, but so much has changed since then.

If you ever want to buy your own home you really need to show proof of income to qualify for a mortgage.The same thing goes for investing once you have made your income legit you can do so much more with your money beyond just burying it in your back yard.I think at first paying taxes sounds like a waste of money, but in the long run you may find that you can earn so much more by keeping it legit.

I do not know if this helps, but I use turbo tax, and just keep it very simple.If you want to write off a lot of exspenses you would probably be better off finding someone who really knows what they are doing.

Good luck

Damn, I can't deduct all those fancy heels, huh?

I call myself an "entertainment consultant," keep a legal but "edited" ledger, the minimal in records and expenses, and pay taxes. It isn't fun, but lots better than an audit, a fine, and possible jail time. Do yourself a favor, gals, and report a reasonable amount. Don't we have enough to worry about from the Morals Police?

A few years ago they were giving loans out to just about everyone, but so much has changed since then. Originally Posted by Becky

It was called a "fog the mirror loan." If you had a breath, you could fog a mirror and there by qualify to get a loan. Seems that *may* have had a minor effect on our current economic environment.

If you ever want to buy your own home you really need to show proof of income to qualify for a mortgage. Originally Posted by Becky

Like above, there were many "no proof of income loans." Those are long gone and a bane of our existence.

That being said, loan rates are good if you can put 20% to 25%, have good credit scores, and reasonable employment. I think conforming, 30 year fixed, under $417k are about 4.75%. Jumbo 30 year fixed are about 5.25% (seat o' the pants numbers).

Mind you, a bank is required to report any deposit greater than $8K in a single transaction Originally Posted by winemaker

financial institutions are required to file a report called a "currency transaction report" (CTR) for each deposit...withdrawal...exchang e of currency or other payment or transfer...by...through or to the financial institution which involves a transaction in currency of more than $10,000.00...also...in addition to that report...they can also file a report called a "suspicious activity report" (SAR) by which any transaction(s) that the financial institution deems suspicious (regardless of dollar amount) will be placed on this report and filed with the government...these were implemented with the passage of the "Money Laundering Control Act" in 1986 to combat perceived money laundering as a result of illicit income...

my 10 cents...my 2 cents is free...

allstar