Tips For Reporting Tip Income

Do you provide services for special events, such as DJ services, hair and nail services, photography, catering, limo service or something else? If so, you probably receive tips from satisfied clients. Uncle Sam would like you to share a portion of those tips with him. Tip income must be reported to the IRS and the State Tax Commission as part of your annual income.

If you are the business owner, you might include tips as a special category in your bookkeeping software program. If you  are an employee, you may have other record keeping and reporting requirements. The IRS offers help in their booklet, "Tips on Tips."  Be sure to check the information on page 4 detailing the ways in which reporting your tips (which increases your annual income) may benefit you. If you are in an industry where tips are regularly received and you do not report them on your tax return, don't be surprised when you receive a tax audit notice.

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