Tipping Strippers - Tax Free?

I think the "no tips on taxes" was a platitude offered by both parties last election. I am skeptical it becomes policy anytime soon. And, I'm also skeptical it should be policy at all: low-wage earners already don't pay income tax at all so the idea is mostly moot as most tipped employees earn too little. But is there a reason a high-end waiter earning a decent living should be taxed less taxes than a salaried or non-tipped employee earning the same amount?

Income tax sucks, it's inefficient to tax labor. As a matter of policy I think we should prefer consumption taxes.

To your question: like high-end waiters, I assume that strippers claim the bare minimum income possible. So that $100 tip on dance is indeed technically taxable, but she's probably not going to report that income.

I'd be interested to see a dancer chime in on this question!

None of the strippers I've helped with or talked about taxes with pay taxes. Most of them don't even really realize that people pay taxes, they only understand that once a year they go to some little shop to do their taxes and walk out with money. They don't understand that the tax prep guy is making up income numbers for them that align with them getting a tax credit, then charging them for tax prep, giving them an advance on their return and charging them the bulk of their credit for that privilege. They think that's what everyone does, because they understand that come tax time they see a bunch of customers spending their tax refunds.

The reality that normal people have paychecks and their employer sends the government part of their salary to cover the taxes they'll owe is a complete mystery to them. I never talked to any of them about the no taxes on tips policy, but that actually might make for a funny convo.

As far as what constitutes a tip vs income for a stripper, I'd say money at the rail is clearly a tip. I mean, I've always called the damn thing a tip rail so that one seams pretty easy. The same applies to extra money after dances. Of the common scenario around here the $25 paid for a dance would be income, the $5 house cut would be an expense, and any payment above that would be a tip.

Where it gets less clear is for rooms for what you may be referring to as VIP. Those typically don't have fixed prices, but I personally think of the amount we agreed on as a payment so I'd consider it income for her. But quite often a dancers performance is exemplary and I give her an additional payment which I'd consider a tip.

But, as I started out saying and as RonJox pointed out, it's probably moot. I think the percentage of strippers accurately representing their tips to the IRS is rather small, likely well under 10%. And I think the policy is very unlikely to become reality.

the only reason strippers ever reported cash tips is because they wanted to qualify for a mortgage.

I know one very successful young woman that is a bartender and she wanted me to amend her taxes for the prior 3 years so she would qualify for a mortgage. I told her I would show her how but not amend myself as I thought of hte liability

I do agree that tax policy will be decided by Congress, not POTUS.

I just wonder how close the IRS looks at strip clubs and the cash that is transacted. Oh, I'm not a lover of the IRS as it is just a "carrot/stick" tool Congress uses. We'll never see a flat tax as that removes the most effective tool congress hangs over our heads.

rawhide2 is correct. I knew one that was pissed because she had to declare 85K/year to qualify and now had to pay back taxes on it.

I know another that just bought a new home. In order to qualify she gave cash to a guy that owned his own business and he then gave her a pay check from his business.

Most cash earnings are severely underreported, not just tips, I’m sure businesses skim cash payments and report a small fraction of their earnings.