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Reporting Cash Tips in Lake Las Vegas, NV; Are Service Charges Taxable? Recording Tip Activity & Income

There are millions of taxpayers in the service industry that receives tips. If you receive tips you must report them as income, according to the tax code. Where some employers have a system to simplify the tip reporting, others do not. Today, we at Mark Dicus & Company would like to offer some suggestions regarding reporting your tips when it concerns the taxes.

Reporting Tip Income

There are three basis parts when it comes to proper tip reporting. 1) Maintaining a daily tip record; 2) Reporting tips to the employer; and 3) On your income tax return, record your tips.

Recording Tip Activity

By either maintaining a tip diary or by saving documents that show your tips, you can keep your tips as per the IRS. You can always create your own in the event your employer does not provide you with an electronic form of a tip diary. In Form 4070A, the IRS has one for your use.

Tips Reporting to an Employer

In your diary, report daily tip activity and then on the 10th of the following month, report monthly summary to your employer. When it comes to the monthly report, it should include the following:
– Employer Name and Address
– Your Name and Address
– Your Social Security Number (SSN)
– Time Period
– Signature (yours)
– Date Submitted to Employer
– Cash Tips Received
– Credit / Debit Tips Received
– Tips Paid Out to Colleagues
– Net Tips Received

Do I Have to Pay Taxes on Tips?

Filing your taxes on this income can be done without too much trouble with proper tracking and reporting of tip activity to your employer, below are a few suggestions.
1) For reporting, use your employer. Your employer can help make sure taxes are withheld and sent in for you through efficient reporting. At the end of the year, this will contribute to avoiding a large tax bill.
2) Deliver funds directly to employer. Your wages may not be sufficient to cover your taxes should your tips are a high portion of your income. One solution is to provide a portion of your tip income to your employer to pay a proper level of withholdings on your behalf.

Are Service Charges Taxable?

Being not a tip, but actually a service charge and treated as wages is when your employer adds a set tip amount to a bill (18% automatic tip for parties of 6 our more). For those sharing tips, you need to make sure you are cautious about reporting those tips you share with others. Be sure to clearly report your own net tip income to your employer. On your tax return, do not report gross tips that you share with others. Keep in mind that the potential penalty is 50% of the Social Security and Medicare related taxes you owe on the unreported tips if you do not report tips to your employer.

New & Seasoned Business Advising, Financial Planning & More in Summerlin, North LV, Henderson, Lone Mountain Village & Greater Las Vegas, Nevada

In some instances, an employer will pay you tips and report them on your W-2 that exceed what you reported to them. The silver lining to this is that you receive additional income above your hourly wages. Unfortunately, these tips will have you owing income taxes and Social Security and Medicare taxes. By developing a good reporting system, you can keep track of tip income can be made manageable. If you need assistance with proper tip reporting, you can contact your employer, or for more clarity, call the office of Mark Dicus Company, LLC and let us assist you.

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