How does an escort file tax returns?
This is not a complicated as it sounds. You do need to file a tax return and keep records of all your transacations. You would file as self employed and listing your occupation could be anything as the IRS does not usually check to see if you really are a consultant, party planner, etc.
**IF** you were selling Schedule 1 illegal drugs, it would be a problem because under Section 280E of the Internal Revenue Code, you must disclose your income, but you are not able to deduct your expenses. In other words, you are taxed on your gross receipts. Of course, 99.9% of drug dealers don't report their income and when they get arrested, they usually get nailed on tax evasion charges.
You are in a different line of work so your best bet is to report your income (ALL of it), report your expenses and pay whatever tax is owed. The cash being deposited is not a problem. Not reporting ALL of the income you receive IS a problem.
No taxing authority anywhere in the civilized world cares where the income you declare on your tax return comes from. They just want the tax. In the UK a lady called "Miss Whiplash" was audited and the Inland Revenue took tax from her. She was not prosecuted for the activities that led to the income.
Keep receipts for income spent and keep contemporaneous records of your income (by which I mean recording each receipt separately and on the same day you receive it).
Bear in mind that declaring this income allows you to build a social security record for your retirement.
You are suppose to pay taxes on ALL your income. Did you know that there is a section in the tax code about embezzlement income being taxable? That not legal either.
The money you are paid are for your "time and companionship", and anything that happens behind closed doors is between two consenting adults, so what is illegal about it?
As far as the IRS is concerned, they don't care where you get your money from, as long as you properly report the money you earn and pay taxes on it. If you don't they will come after you. They couldn't get Al Capone for the crimes he committed, but they did send him to prison for tax evasion.
If you are actually reporting your earnings from being an escort and paying taxes on it, you are probably one of the few in this country that is doing it.
I have done these cases before.
You need to report your income and pay taxes on it. You will note that even illegal activities including embezzlement is actually noted in the IRS instructions. The IRS is independent of law enforcement, for the most part (but not entirely). They do NOT report where your earnings comes from because that would be an illegal invasion of privacy. On the other hand, NOT reporting income can land you in double hot water!
In the past, I used to handle a lot of girls (OK, well I didn;t "handle" them! <grin>) that worked at the topless club down the street. All were independent contractors.
We generally classify such employment as "entertainment". As such, certain business expenses are deductible as long as you have adequate records. Some deductions include costumes that would not be usable as street attire, certain accessories, and of course, boob jobs and the like.
BTW, boob jobs are depreciating assets on a 3-year life. There has been an actual federal case, and the court ruled in favor of the entertainer because she could prove that an enhanced bustline increased her income.
Enrolled Agent / Tax Advisor
p.s. I work for money only <wink>
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