How Do Prostitutes Pay Their Taxes?

ACORN, the community organizing group and Republican cause célèbre, lost its federal funding last week after some of its employees were captured on video telling people they thought were prostitutes how to manipulate tax laws. How do real prostitutes go about paying their taxes?

They report their income on IRS Form 1040 Schedule C (PDF) and pay self-employment tax in addition to ordinary income taxes. Sex-worker advocacy organizations regularly receive requests for tax advice. Some prostitutes, for example, might need help with the first line on the form—which asks the filer to identify her profession and service offered. It turns out that the Fifth Amendment privilege against self-incrimination permits a prostitute to leave this line blank or provide a vague answer like "sale of leisure services." The form also requires the filer to select a code for line of business. The ACORN employee recommended 711510 ("independent artists, writers, and performers"), but 713900 ("other amusement and recreation services") and 812990 ("all other personal services") would have been equally appropriate.

Successful prostitutes may claim to be working in a related field, like nursing or psychology. There are some powerful incentives for these women to file: If a high-earning prostitute wants to buy a house or a car or sign up for a credit card, she'll need to report some income. One way to do that is to get a degree or license of some kind and then claim income for a related service—for example, therapy. For high-end prostitutes, the fear of being caught evading taxes has more to do with reputational damage and harm to their business than legal penalties.

Read more in Slate.