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A Question of Legality Post your legal questions here (general, nothing of a personal nature)

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Old 11-13-2012, 01:58 PM   #1
ftime
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Default Federal taxes

I've searched for this, but have found nothing. How do providers avoid paying taxes?

I have a freind who has a lucrative Sugar Daddy arrangement. Let's call it $80K per year. Her W2 income is less than $5,000 per year. She had received a settlement from an accident which was $100K two years ago. She has two kids and lives with her parents and pays no rent.

She has several credit cards that she runs up at least $2k a month in bills and pays each month in total. She buys her own health insurance and car insurance. She has paid cash for two cars totaling almost $40K. She pays several thousand a year for college tuition. At the end of this she has more money in the bank than the 100K she started with. She makes monthy deposits in the bank to pay the bills mentioned.

Question: While she is concerned about a prostitution charge (not likley), I think her bigger is is tax evasion. Thoughts? I'm sure others are in this situation.
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Old 11-13-2012, 03:18 PM   #2
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any single deposit or purchases totally over 10,000 will put you in the spotlight

http://en.wikipedia.org/wiki/Bank_Secrecy_Act

http://www.city-data.com/forum/perso...uspicious.html

http://smallbusiness.chron.com/irs-r...000-16016.html

just use google and you'll come up with tons of stuff
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Old 11-13-2012, 05:02 PM   #3
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Absolutely. And, she's leaving a paper trail of expenses (credit card statements, deposits, car purchases) through which the IRS can reconstruct her income.

Question is, are her deposits taxable income, or are they non-taxable gifts? Most likely, Sugar Daddy is not filing a gift return. So, they're taxable income.
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Old 11-13-2012, 06:05 PM   #4
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A sugar daddy situation is a little different from a provider’s situation. The sugar baby “might” stand a chance of arguing that the money is gift. Generally, the giver of the gift is responsible for paying the gift tax. Google IRS gift tax exclusion. The IRS lays it out pretty well.

The IRS isn’t the only problem. Cash transactions over $10,000 must be reported to feds. Structuring a transaction to avoid the currency reporting law is also a felony.

Then there is money laundering. $80,000/year is significant. It’s hard to keep that amount of cash below the radar.


Then there are the federal forfeiture laws. Briefly, if your tax returns show no income, yet you have say $100,000 in assets, the feds can just seize your assets and make you prove that you have a legal right to them. John Wiley Price here in Dallas is in that boat now. Sure, you can sue to get your money back. However, every thing you say will be used in your criminal trial for tax evasion, currency reporting, and money laundering. If you play your cards right, you may get a perjury charge too.

Of course, there is a SIMPLE way to avoid all this drama---marry the old geezer.
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Old 11-13-2012, 07:33 PM   #5
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I know many people in the drug business were busted, not for drugs, but for tax evasion. I have argued the whole paper trail and asset thing and she doesn't beleive me. Thinks I may have ulterior motives, which I may, but that doesn't make me wrong. My veiw is that can skate for a while, but not forever. And no - she isn't going to marry him. It's simple math in my mind. Money in that you claim vs money out.
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Old 11-14-2012, 04:37 AM   #6
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Create an LLC and pay her through that as an employee.

She pays taxes on it which is made up by the sugar daddy in business things like car, wardrobe etc.
I read it in a book or something
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Old 11-14-2012, 02:47 PM   #7
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I know those that have set up LLCs of massage, personal training, or other various services that have legitimacy. Then all funds can and should be run through that corporation. The tax issue is what caught Al Capone.
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Old 11-14-2012, 04:01 PM   #8
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Let's forget the original question. Let's just bring it down to a provider level. Don't they have the same issue. I know women who because of quanity or quality are making good money. Back in the E days, there were girls seeing 5 clients a day on avererage and working 6 days a week. You can see how that would add up.
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Old 11-14-2012, 06:58 PM   #9
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Quote:
Originally Posted by ftime View Post
Let's forget the original question. Let's just bring it down to a provider level. Don't they have the same issue. I know women who because of quanity or quality are making good money. Back in the E days, there were girls seeing 5 clients a day on avererage and working 6 days a week. You can see how that would add up.


Sure providers have the same issue. However, most providers aren’t living so high on the hog. I have yet to see a provider with two brand new $20,000 cars parked in the driveway. The IRS isn’t going to chase after someone living in an $800/month apartment driving a $4,000 used car.
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Old 11-14-2012, 07:11 PM   #10
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Quote:
Originally Posted by Asmodeus View Post
I know those that have set up LLCs of massage, personal training, or other various services that have legitimacy. Then all funds can and should be run through that corporation.
That’s called money laundering. Minimum federal sentence 5 years. That’s day for day, no parole.
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Old 11-29-2012, 02:24 PM   #11
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"""Her W2 income is less than $5,000 per year."""

I believe the minimum salary that receives Social Security credit is something like less than $3000 a quarter. To receive any sort of Social Security one needs 40 quarters of credit [aka 10 years]
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Old 11-29-2012, 06:25 PM   #12
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IRS says all income must be reported. Escorting is a legal business. You can not hide money from the IRS. They have a lot of very smart forensic accountants that you will not out smart. But the IRS is tricky, you ever watch Weed Wars? Like on there the guys filed a tax return and tried to pay taxes on their money. The IRS said yes you did make that much money but federal law says the selling of marijuana is illegal and they were running a illegal enterprise so there for they taxed every single penny the brought in and would not let them take any deductions. They ended up owing over million dollars.
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Old 11-29-2012, 07:07 PM   #13
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Probably the safest way to handle taxes for an escort is to treat herself as self-employed or independent contractor. Then be careful and not try for a bunch of deductions that may raise flags with the IRS. Exotic dancers, the professional ones anyway, do this all the time. The legal way would be to report all the income and pay estimated quarterly taxes.
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Old 11-30-2012, 01:09 AM   #14
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With respect to the lawsuit settlement - According to the tax code, the only damages you can enjoy tax-free are those that compensate you for physical injury or physical sickness. (26 U.S.C. § 104(a)
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Old 11-30-2012, 06:19 AM   #15
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If I spend over a certain amount with one lady, do I need to issue her a 1099? W2?

Granted, I always do incall, they provide the condom 90% or more of the time, so I don't think they ever reach the level of my employee, but I am not sure I understand the 1099 rules.

Thankfully, I don't think I have ever crossed the line for the $13,000 gift tax exclusion in one calendar year to one provider.
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