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How to Claim Tips on Income Tax
Many people do not know that they can claim tips on their end of the year income taxes. Some businesses allow their employees to report their own tips when the time comes while others make their employees to report their tips on a daily basis and add them to the income reported on their W-2s. However, it is important to learn how to claim tips on income taxes so that you do not end up having problems with the IRS. You can avoid such problems by hiring Denver bookkeeping services with extensive experience in tax planning.
â€¢ Maintain a record of all unreported tips of the year. This includes all tips that remain unreported to your employer at the end of your shift.Â
â€¢ Fill out the federal tax form appropriately and with accurate information including your name and other personal information.Â
â€¢ Look at the section titled â€œincomeâ€ on the federal tax form. Enter all your income under this section. If you are not sure, consult a Denver tax resources specialist to help you fill out your federal tax form.
â€¢ Your tip money should be entered under the â€œwages, tips and salariesâ€ section. Fill out this section only if your employer is honest enough and does not want to withhold taxes from your income.Â
â€¢ Fill out Form 4137 to report tips that were not reported to your employer for social security and Medicare withholding. Form 4137 is usually filled with the federal income tax return.Â
This is used to track and account for employees daily tally of tips in cash and credit. The tips are calculated and added to Form 4070-A and a monthly report is sent to the IRS with the employeesâ€™ names, addresses and Social Security numbers.Â
Tips are easy to track and account for when they are added to a credit card. However, employers often have to rely on the honesty of their employees when the tips are in cash. Denver tax planning services can help you and your business not become overburdened by complicated tax concerns.Â