|
|
|
The Tips to Plan Tax on Your Tips
Handle your tips carefully You should report your tips accurately to your employer and also on your tax return. Remember, tips are received by people working in various industries. So if you don't work for a restaurant, do not assume that you can avoid reporting tips. Cab drivers, club attendants, hairdressers -all of them or people working in the similar professions must report tip income to IRS. You should keep daily record of tips in a tip diary. You should use Form 4070 to report such tips to your employer. Tips include -which you get from the customers' order from other employees and tips from credit card charge customers that your employer pays to you. You should also report the non-cash tips you get in the form of tickets, passes or other items. The amount of tips which you paid to other employees through the tip pools should also be reported with the name of the employees to whom you paid them. You should not include in your tip diary the amount of service charge that your employer adds to the bill of his customers and then pays you as part of your wages. The reporting of tips to your employer is very important because your employer can withhold Federal income tax and social security as well as Medicare taxes on that amount. If your total tips for any one month from one job are less than $20, you need not report them to your employer. You need not report the value of non-cash tips to your employer. This is because you do not pay social security or Medicare taxes on them. If there is no other way to report your tips to your employer, then you should use form 4070 employees report of tips to employer. You can fill in the necessary information on that form, sign and date that form and give it to your employer. Alternatively you can hand over a statement to your employer with your name, address, social security number, the month in which you received tips, and the total tips required to be reported for that period. You can also send this statement electronically to your employer. The report should be sent to your employer every month by the 10th of the next month. If your employment ends during the month, then you can report your tips when your employment ends. There is a penalty for non-reporting tips. The penalty maybe equal to 50 per cent of the social security and Medicare taxes you owe on the under-reported tips. If your regular pay is not enough for your employer to withhold all the taxes, then you can give money to your employer to take care of the rest of the taxes. All taxes which are for the month can be collected by your employer from your next paycheck. If some taxes remain uncollected at the end of the year, you may be subject to a penalty for the underpayment of estimated taxes. Reporting tips on your tax return You can report your tips with your wages in forms 1040EZ or Form 1040A or form 1040. If you receive tips as a self employed person, you should report them as your income on schedule C or C-EZ. Your employer can allocate tips to you in addition to the tips you reported to him, if you worked in a restaurant that must allocate tips to employees or the tips your reported to your employer were less than your share of 8% of food and drink sales. You must report these allocated tips on your tax return. Your employer can use a tip rate lower than 8%, but not less than 2%, to your allocated tips only if IRS approves the lower rate. Reporting correct tips as your income is good for your future because this figure can be used to determine how much money should be paid in your social security and Medicare accounts. This will be very convenient for collecting these benefits on your retirement or if you are disabled. Chintamani Abhyankar is internet marketer, tax professional and freelance writer. He has done a lot of research on tax systems and is advising people internationally on various aspects of tax planning over last 25 years. His masterpiece, Stop donating your money to IRS is an e-book on the tax secrets which only lucky people knew in the past. His easy to implement strategies can put thousands of dollars in your pocket. Grab a copy now! Article Source:
http://EzineArticles.com/?expert=Chintamani_Abhyankar
|