1.  How does an exotic dancer who works in a strip club get paid?

2.  Could she save money on her taxes if she incorporated or at least
filed as a sole proprietor.  

3.  Would it be best if she incorporated as an LLC, Inc, sole proprietor, etc.

4.  Could you give a rough estimate of how much money she could save
in a year.  Assume her operating expenses are around $30,000.

Background info - I figure that they might be able to expense dresses,
make-up, haircuts, fitness classes, etc. and save some money.  Figure
they are single and make 70,000 dollars a year.

Howdy robertxavier-ga,

A reminder of the "Important Disclaimer: Answers and comments provided on
Google Answers are general information, and are not intended to substitute
for informed professional medical, psychiatric, psychological, tax, legal,
investment, accounting, or other professional advice."

This StripperWeb message base posting addresses your first question.  Warning!
This web site might have material that are "adult" in nature.
http://www.stripperweb.com/forum/showthread.php?t=26729

"The clubs that are in Montana, North and South Dakota, Western Iowa, and
Northern Nebraska, along with scattered clubs in smaller Illinois, Minnesota
and Wisconsin cities ... Most pay in cash and some in check for the exact
amount of your pay."

Of course, an exotic dancer is going to make the majority of their wages in
the form of tips, which would be in cash.  The place of employment, as shown
above, pays in cash most of the time as well.

The following answers are based on the dancer being considered an independent
contractor, and not an employee of the club, that is, the club is not paying
withholding tax, etc.

The dancer incorporating, specifically as an "S-Corporation," will provide
some potential tax savings.  This example by Philip K. Akalp, Esq. as part
of the Corporate Bee Newsletter on the MyCorporation web site outlines the
savings potential.
http://www.mycorporation.com/newsletter/archives/Jan10-2001.htm

"Self-Employment Tax Savings

In 1998, the IRS's Self Employment Tax Rate on a taxpayer's first $68,400 was
15.3%.
...
In an S-Corporation, however, only earnings actually paid out to an owner as
compensation for services are subject to payroll taxes."

They give an example of a singer in the above newsletter, but let's look at
your numbers instead.  If the exotic dancer in question were to be considered
a sole proprietor, they would have to pay self-employment tax, which is still
15.3% (12.4% for social security and 2.9% for Medicare), of the entire $70,000
or a total of $10,710 in taxes.  There might be deductions, etc. they might be
able to take, but you get the idea.

For more on self-employment tax, there is this publication from the Internal
Revenue Service (IRS).
http://www.irs.gov/pub/irs-pdf/p533.pdf

"Publication 533 ... Self-Employment Tax"

If the dancer was incorporated as an S-Corporation and they paid themselves
the $40,000 as stated in your question, then the self-employment tax would
be on the $40,000 instead of the full $70,000.  This gives us a tax of $6,120
instead, for an annual savings of $4,590 a year in taxes.  As with LLCs, an
S-Corporation provides tax deductions for health plans, etc. as well.

More on S-corprations can be found on this IRS web page.
http://www.irs.gov/businesses/small/article/0,,id=98263,00.html

"S Corporations
...
On their tax returns, the S corporation's shareholders include their share
of the corporation's separately stated items of income, deduction, loss, and
credit, and their share of nonseparately stated income or loss."

The web site of Eliot H. Lebenhart, CPA has a great worksheet which shows
typical deductions for entertainers.
http://www.ehlcpa.com/tax_deductions_for_models_actors.html

"In order to deduct expenses in your trade or business, you must show that
the expenses are 'ordinary and necessary.'  An ordinary expense is one which
is customary in your particular line of work."

You will want to check on the individual state of residence on how they deal
with the taxation of S-Corporations, as they are not all the same.  As well,
with any tax matter that might be complex, a call to a tax attorney, etc.
might be a good idea.

If you need any clarification, please feel free to ask.


Search strategy:

Google search on: tax OR taxes "S-Corporation"
://www.google.com/search?q=tax+OR+taxes+%22S-Corporation%22

Google search on: entertainer deductions
://www.google.com/search?q=entertainer+deductions

Warning!  This last search might produce results that are "adult" in nature.

Google search on: "exotic dancer" "get paid"
://www.google.com/search?q=%22exotic+dancer%22+%22get+paid%22

Looking Forward, denco-ga - Google Answers Researcher