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Get paid tips? Learn how to create a good system for your reporting needs.

October 18, 2017 by Reynolds & Rowella Leave a Comment

If you are like millions of taxpayers who work in the service industry, you may receive tips. The tax code is clear; if you receive tips you must report them as income. Some employers have systems to make this easy, while others do not. Here are some suggestions:

Think 1-2-3.

Proper tip reporting has three components.
1. Keeping a daily tip record
2. Reporting your tips to your employer
3. Recording your tips on your income tax return

Recording tip activity.

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

Reporting tips to an employer.

You should record daily activity in your diary and then provide a monthly summary to your employer by the 10th of the following month. The report should include the following elements:

• Your name and address
• Your social security number
• Employer name and address
• Time period
• Date submitted to employer
• Your signature
• Tip information: cash tips and credit/debit tips received, tips paid out to fellow workers, and net tips received

Paying taxes.

With proper tracking and reporting of tip activity to your employer, filing your taxes on this income can be done without too much trouble. Here are some ideas.

Use your employer for reporting.

With proper reporting, your employer can help ensure taxes are withheld and sent in for you. This can help you avoid a large tax bill at the end of the year.

Giving your employer funds.

If your tips are a high portion of your income, your wages may not be sufficient to cover your taxes. To solve this, you can provide some of your tip income to your employer to pay a proper level of withholdings on your behalf.

Other things to note.

Service charge or tip? If your employer adds a set tip amount to a bill (18 percent automatic tip for parties of six or more), this is not a tip, it is a service charge and is treated as wages.

Shared tips.

Be careful reporting those tips you share with others. Clearly report your own net tip income to your employer. Do not report gross tips that you share with others on your tax return.

Know the penalty.

If you do not report tips to your employer, the potential penalty is 50 percent of the social security and Medicare-related taxes you may owe on the unreported tips.

Allocated tips.

Sometimes your employer pays you tips and reports them on your W-2 that are above what you reported to your employer. The good news? You receive additional income above your hourly wages. The bad news? You will owe income taxes AND social security and Medicare taxes on these tips.

Keeping track of tip income can be made manageable by developing a good reporting system.

Please contact us at consulting@reynoldsrowella.com for help if you need assistance before it gets out of hand.

 

Reynolds & Rowella | Accounting and Consulting Fairfield County CT

Reynolds & Rowella, LLP is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with clients. As members of Enterprise Worldwide, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve. Whether closely-held corporations or high-net-worth individuals, we believe we have earned our clients’ trust.

Filed Under: Deductions Tagged With: Accounting Services Fairfield County CT, Advice on tips, Best Accounting Firms Fairfield County CT, Tips and deductions Fairfield County CT

Get the maximum benefit from a casualty

loss deduction

October 11, 2016 by Reynolds & Rowella Leave a Comment

hurrican-seasonViolent weather can wreak emotional and financial havoc. If your home, vehicle, or other personal property is damaged or destroyed by a sudden, unexpected casualty, an itemized tax deduction may help ease the financial burden.

In most cases, you claim a casualty loss in the taxable year the calamity strikes. However, if you’re in a federally declared disaster area, you have the option of amending your prior year return. Either way, to receive the maximum benefit you’ll need to calculate the amount of your loss. Here’s how.

File an insurance claim.

If your property is insured, file a timely claim.

Get an appraisal.

An appraisal determines the decline in fair market value caused by the casualty. Tax rules require that you measure the difference between what your home or property would have sold for before the damage and the probable sales price afterward.

Establish basis.

Generally, adjusted basis is what you originally paid for the damaged property, plus improvements. If your records were lost in the casualty, recreate them using reasonable estimates or the best information you have.

Keep receipts for repairs.

In some situations, repairs you make to restore your property to pre-casualty condition can be used as an indicator of the decline in the fair market value.

Remember, you’re not alone. In the aftermath of a casualty, we’re here to help you resolve the tax issues.

Contact us at consulting@reynoldsrowella.com to discuss your situation.

Filed Under: Deductions, Uncategorized Tagged With: Accounting Services Fairfield County CT, Best Accounting Firms Fairfield County CT, Casualty Loss Deduction, Financial Planning Fairfield County CT

Work-related education costs may be deductible

August 18, 2016 by Reynolds & Rowella Leave a Comment

Are you going to school this fall to earn an advanced degree or to brush up on your work skills? If so, you might be able to deduct what you pay for tuition, books, and other supplies.

If you’re self-employed or working for someone else, you may be able to claim a deduction for out-of-pocket educational costs if the training is necessary to maintain your skills or is required by your employer.

Just remember that even when the education meets those two tests, if you’re qualified to work in a new trade or business when you’ve completed the course, your expenses are personal and nondeductible. That’s true even if you do not get a job in the new trade or business.

Work-related education expenses are an itemized deduction when you’re an employee and a business expense when you’re self-employed. You may also be eligible for other tax benefits, such as the lifetime learning credit.

Contact us at consulting@reynoldsrowella.com to discuss your situation.
 

Filed Under: Deductions Tagged With: Accounting Services Fairfield County CT, Best Accounting Firms Fairfield County CT, Can I deduct my education, Work-related education and deductibles

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