What do gangster Al Capone and former New York Gov. Eliot Spitzer have in common? They both were taken down by feds who followed their money. Capone was nabbed on tax-evasion charges. Spitzer first came under suspicion when his bank noticed he was moving a lot of money around. The whole hooker business came later.
If you don't want to end up like Scarface or Gov. Whoremonger, pay your taxes.
Perhaps you don't bother, at least when it comes to webmaster activities. After all, what the IRS doesn't know can't hurt you, right? And despite everything that's changed in the past decade, cyberporn remains an underground business.
But the carefree old days of the porn industry are gone. Years ago, in the days of Deep Throat, suitcases full of cash would go in and out of adult theaters, said Lawrence Walters, an attorney who represents porn webmasters. "But now, with adult websites, every single transaction is recorded," he said. "There's evidence of credit card or PayPal electronic payments, and all of that can be put back together, can be subpoenaed and checked out."
Banks are another potential hazard area. "Spitzer got caught because of transaction reports that were filed at his bank," said an East Coast accountant who didn't want to be named. The same thing could happen to you even if you never go near a hooker like Spitzer did.
According to the accountant, some banks pay close attention - as required by law - to transactions of $10,000 or more. But others start noticing transactions of as little as $5,000.
Unless you keep your money under a mattress, you might be noticed. And all those credit-card transactions make it even more likely that the IRS will learn of your existence.
Let's say you do keep your money under a mattress, you hide your credit-card income in an offshore account somewhere, and your accountant knows the tricks of the trade. Are you still at risk? Absolutely.
For one thing, you might be turned in by an angry former affiliate or a jilted business partner. "I had a client who worked in vending machines and would go around bragging," the accountant recalled. "A guy went to the IRS and dropped a dime on him."
Then there's the possibility of an audit. According to the accountant, the IRS is especially suspicious of self-employed people because they're so likely to fudge their figures. That means you're more likely to get audited than, say, a McDonald's franchise or a dry cleaner.
Once an auditor is on your tail, you may be in more trouble than you bargained for. In some cases, they might drive by your house to see if your $25,000 annual income matches up with the eight bedrooms and the three Beamers behind the front gate.
"Nobody's going to put you in jail for missing a deduction or misinterpreting the law if you have a qualified tax preparer," the accountant said. "But if you're not paying taxes and they find out, prison can be the ultimate penalty."
So what should you do? First of all, consider getting some help from a professional. "A lot of the folks from the adult webmaster community are technical-oriented computer geeks, and a lot of them don't have a business background," Walters said. "But they should still take advantage of the loopholes and write-offs like any other business."
It may be tough to find an accountant willing to work with an adult business, but you can get referrals from attorneys who represent porn webmasters. You also could try consulting cyberporn resource websites.
Then, read up on how you can pay the least tax possible. It's likely that you can write off dozens of business expenses, such as trips to conferences, wireless Internet fees and phone calls.
If you work from a home office - it has to be a room dedicated to that purpose - you can write off part of your rent or mortgage, plus cooling and heating. You could even write off part of the money you pay your housekeeper to clean the office.
Walters suggested that webmasters keep their personal and business accounts separate. That means separate credit cards for you and your business. This will save you plenty of time during tax season.
And if you have affiliates or contract work out to people, file 1099 forms for them. That way, you can write off their income as a business expense.
"I don't care if you report to the IRS, but I'm going to report to them," said CherryPimps.com CEO Jack Avalanche, who has his affiliates fill out W-9 forms. "I'm not going to risk my livelihood for you."
Get used to the idea of paying taxes. Uncle Sam may not like what you do for a living, but that doesn't mean you can avoid giving him any of your hard-earned dough.
-Andy Winterbottom
This article originally was published in the June 2008 issue of AVN Online. To subscribe, visit AVNMediaNetwork.com/subscriptions.
