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TAX & TIPSPosted Wednesday, January 25, 2012, at 6:27 PM
The Internal Revenue Code section 61 defines income as "Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items. The first item is "compensation for services, including fees, commissions, fringe benefits, and similar items". This includes "tips" received from patrons. Here are four tax tips regarding tip income from the IRS:
1. Tips are taxable Tips are subject to federal income, Social Security and Medicare taxes. The value of non-cash tips, such as tickets, passes or other items of value, is also considered income and subject to tax.
2. Include tips on your tax return You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.
3. Report tips to your employer If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.
4. Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee's Daily Record of Tips and Report to Employer, to record your tip income.
Not reporting tip income can have serious consequences if your are audited and you have underreported income. In the case Balot v. Commissioner, T.C. Memo. 2001-73 [TC Memo 2001-73], after losing a collection due process hearing appealing an IRS tax lien and levy, the tax court held that the plaintiffs were liable for additions to tax for civil fraud, additions to tax for negligence and for the deficiencies redetermined. The deficiencies totaled $14,564 and the addition under section 6663 (fraud) was $8,698.
Don't gamble with your taxes.
If you have specific questions about IRS tax problems, post those questions here or send an email to firstname.lastname@example.org (all communication regarding tax matters is confidential to the fullest extent of the law). To learn more about tax problems and how to resolve them, visit www.irssurvival.com (if you do not see your specific issue listed or you cannot find an answer to your specific problem, send an email or call 573-275-9055 or 855-IRS-SURVIVAL.
IRS Circular 230 Notice: To ensure compliance with requirements imposed by the IRS, we inform you that, unless specifically indicated otherwise, any tax advise in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed herein.
Taxes, Liens and Levies, Oh My!!
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Alan is a CPA and a Certified Fraud Examiner (CFE) with the firm Begley, Young, Unterreiner & White, LLC located in Cape Girardeau. He is a member of the American Institute of Certified Public Accountants, the Missouri Society of Certified Public Accountants and the Association of Certified Fraud Examiners. Alan obtained his MBA from Southeast Missouri State University, and is also a Certified QuickBooks ProAdvisor who provides support to clients on the use of QuickBooks. Alan's firm works with a variety of small businesses and not-for-profit organizations providing accounting and payroll services, compilations, reviews and audits, estate and tax planning and tax preparation. Alan can be reached at 334-2845 (office) and 275-9055 (cell) or you can email him at email@example.com.