If you work in the service industry, you know that walking out at the end of a busy shift with a pocket full of tips is a feeling that’s hard to beat. But how exactly do your tips factor in with your taxes? Luckily, Marc Egort CPA has you covered with a go-to guide to keeping track of your tips for taxes this season.
Keep a Tip Diary
At the end of a busy night, it can seem quite impossible to withhold from simply going home and hopping into bed. Often by the time we wake in the morning the amount we made in tips the night before is a total blur. Keeping a tip diary will help you manage your tips so that when tax time rolls around, you’ll be sure to have all your ducks in a row.
Luckily, the IRS provides the Form 4070A that can be used as a tip diary. If you rather jot down your tips in a notebook or journal, feel free to…as long as you have a place to keep proper notes.
Below is a list of the essential articles to keep in your tip diary (label by date):
- Cash tips from customers or other employees.
- Credit or debit card customer tips from your employer.
- Tips you paid out to other employees when splitting tips or from other arrangements. Be sure to put the name of the employee and how much the tip was in total.
Non-Cash Tips
Non-cash tips, according to the IRS, are considered income. If a customer hands you a gift card valued at $75 it is then considered $75 in non-cash tip income. You do not need to report these tips to your employer, but the IRS requires that you claim the $75 when you file your tax return. Be sure to jot down non-cash tips in your tip diary as well.
Be Aware of Employer Record Keeping
By law, business owners are required to withhold payroll taxes on employee tips. A server and other employees must fill out a W-4 form for their employers. This discloses how much tax to withhold from your paychecks. Be up to date and on top of your employer’s record-keeping methods (typically through a POS system – a computerized point of sale system). Every year, a W-2 form will be sent out before tax time with your hourly pay, claimed tip income, and paid taxes.
Keep Up To Date On Your Tips With The Help of Marc Egort, CPA
It can be hard to strike a balance between keeping up with your job, at home tasks, and your finances. Staying organized, especially when it comes to your payroll, is extremely important. Marc Egort can help you year-round to make sure you’re ready for tax season. Call us at (754)301-2183 or contact us here!