A little tip from the ole’ IRS

Like the all seeing eye, we all know the IRS is watching everything we do that involves money. Every paycheck, every bit of interest and dividends, and every inheritance you receive the IRS is right there, making sure they get their cut. And we know some tax money goes to some good causes, but it’s hard to keep that foremost in your mind’s eye when it feels like your wallet is dying from the death of a thousand cuts. As Forbes points out if you’re someone who depends on their tip jar to make ends meet the IRS has made it clear that those dollars needs to be accounted for as well

What’s The Deal With Tip Boxes?

For those who’ve never worked in the service industry, there tend to be four qualifications for something to be considered a tip. It has to:

  • Be voluntary/optional.
  • The customer determines what amount to give.
  • It is not a policy of the business.
  • Generally, the customer knows to whom they’re giving the money.

That fourth one is where tip boxes and tip jars get affected. Because no one can be certain who received the money left in one of these (since the tips are split up among the staff at the end of the shift), the money put in these boxes was not always considered a tip in the legal sense. However, thanks to the official position of the IRS, now it’s clear that all money that comes out of a tip jar is, in fact, a tip in the legal sense, and must be claimed as income just the same.

So whether you’re working the counter at a coffee shop, or you’re waiting tables in a restaurant, all tips, regardless the manner collected, now must be accounted for in the same way.

You Need A Plan To Deal With Your Taxes

It seems that nowhere is safe from the IRS. They’re going to take their pound of flesh from literally every source of income you might have, and they’ll be sure that all the books stack of straight and neat. That shouldn’t surprise anyone, though, given that tax forms have a data field for money made through illegal activities, and that filling that out can’t be used against you in a court of law. The IRS is indifferent about whether you’re dealing drugs or running guns, as long as you account for your profits, and pay your fair share into the tax coffers.

Which is precisely why it should surprise no one that the IRS wants to account for every penny in the tip box that gets split up between you and your co-workers at the end of the shift.

So what are you going to do? You can’t simply exclude your tip jar income from the IRS at the end of the year. That gets you landed in a jail cell, whether you’re a Hollywood movie star, or one of the biggest crime bosses ever to come out of the Prohibition era. Which means you need to keep careful track of your tips, log them, and be sure to report them when April looms.

However, there is still hope. Because with a little bit of planning and expert assistance, you can often end up giving the IRS a lot less of your earnings than you otherwise would. Whether it’s through  contributions to a retirement fund, donations to charity, or other legitimate ways to ease your tax burden, there are a lot of options in the internal revenue code to do it legally. You just need to find the ones that will work for you.