Failure to Launch

Making the financial leap from college to independent adult living can be a real challenge. New graduates who start with trust funds, generous parents, and Ivy League degrees enjoy a real head start over their peers. (If you want a career in Hollywood, your best bet is to be a “nepo baby,” like Zoe Kravitz, Lily-Rose Depp, or Colin Hanks.) The rest make do by navigating competitive job markets, inflated rents in popular urban areas, late night side gigs driving Ubers or tending bar, and spiraling price hikes for avocado toast.

Fortunately, some attractive young people have an additional option: to become sugar babies. Visit Reddit’s “sugar lifestyle forum,” and you’ll find an entire hidden subculture of older sugar daddies giving gifts to younger sugar babies for companionship and –usually but not always – sex. A four-night stay in a luxury hotel in Thailand on the water? Sure! An Aston-Martin Vanquish touring sedan? Why not? A stack of Benjamins for rent and student loans? Not as glamorous, but that works, too. Paid companionship dates all the way back to the Bible, and it’s not going away in today’s climate of six-figure student loan balances.

“Sugaring” occupies a gray area between private relationships and commercial sex work. Naturally, that raises all sorts of tax issues. Are sugar “gifts” really taxable income? Is sugaring a business? Should the IRS be getting involved, and if so, how? Bridget Crawford, a tax professor at Pace University Law School, has just contributed a 62-page paper with 534 footnotes to the Minnesota Law Review, that addresses all of those questions with kindness and respect.

Much of the debate flows from a central question: is sugar dating prostitution? Courts have consistently held that a straightforward exchange of sex for money falls within that definition. However, they typically hold that sex plus something else, be it companionship, a meal, or other non-sexual services, falls outside. Crawford finds that, “except in the most transactional of circumstances, sugaring is not prostitution.” Still, sugar daddies and babies don’t want to feel like they’re committing a crime, and the author acknowledges that terms like “dating,” “sugar,” and “gifts” helps maintain that mental distance.

Next , Crawford surveys discussions about tax issues on the Reddit sugar dating forum. Would you be shocked to learn that most participants seem less interested in giving Uncle Sam his share than in avoiding audit? Forum postings include lots of recommendations to avoid depositing cash in the bank and shy away from third-party apps like Venmo that might issue 1099s. Some understand that if payments aren’t taxable as income, they might be treated as taxable gifts. Others debate the wisdom of self-employed daddies putting their babies on payroll, and if so, whether to treat them as employees or contractors. Mind you, these are tax amateurs debating technical topics on an internet forum. There’s a reason people say, “Don’t believe everything you see online.” This discussion is the reason.

Crawford concludes that sugaring is a form of sex work. As such, it should technically be taxable. However, practically speaking, the IRS is unlikely to care about anything but the most transactional arrangements. “Any intrusion by the taxing authorities into such a seemingly ‘private’ matter would be wildly unpopular and have potential ripple effects for the entire tax system, if companionship and even sexual services were treated as a kind of bargained-for exchange.

”It's a fun intellectual exercise to debate how subcultures like the “sugar bowl” can interact with the tax code. Fortunately for the rest of us, the rules are generally clear, with bright lines between taxable and nontaxable income, and deductible and nondeductible expenses. Those rules are what let us help you pay less. So be sure to call us at (562) 281-1040 or email us at [email protected] , instead of looking online for help!