Should I Be Including Tips in My Tax Return?
If your tips are business-related, you certainly can include your tips in your annual tax filing.
It’s all about you being honest and responsible about your expenses. As a business professional, the Internal Revenue Service (IRS) is trusting that you will be. If not, they may find out and audit your business. So in order to avoid sending the IRS a red flag and forcing them to look a little deeper into how you’ve conducted business for the past 3 to 6 years, Success Tax Relief, a tax relief firm in Texas, is providing you a list of useful ways you can legally write off your tips.
For Entertainment Purposes
The term “entertainment” can be pretty broad, so it’s important to understand what all that entails. For business purposes, entertainment is mainly related to meals, drinks and beverages needed for business meetings, conference expenses, etc. whether you’re traveling to attend one, or participating as an exhibitor, you can write off the tips involved with valet parking, food and beverage, bus boy and/or concierge services. Entertainment here can also relate to the tips related to taking a client out for a meal, or the accommodation of their room and board. If during that time the client tips, and your company has agreed to take care of the expenses, then you’ll be able to write off approximately 50% of those tips.
Tipping When Traveling
During business-related travels, you’ll find that you’re eating out more often or ordering room service. The chances of cooking your own meal in an efficiency hotel room will be pretty slim. And you have to eat! So when you’re eating out, especially for professionals, a tip is expected. In some restaurants, the gratuity is already included in the bill. So, you may be paying for a tip without even being aware of it. If you choose to add an additional tip on top of the included gratuity, then be sure to record that on your copy of the receipt so that the total amount of tips can be expensed.
Mixing Business with Pleasure
It’s not uncommon to socialize and visit old friends while on a business trip. Some professionals may even take their spouse and/or family members with them during a business trip. Any tips related to their expenses cannot be written off though. However, there is an exception and that’s if the event requires the accompaniment of a client’s spouse and the professional is bringing his or her spouse along.
When it comes to determining what kind of tips can and cannot be written off, there are all kinds of loopholes. But we don’t recommend that you assume what they are. There is a costly penalty when you do not file your taxes accurately. Don’t waste your time and money finding this out the hard way. Contact the professional tax preparers at Success Tax Relief. We have a team of professional CPAs and tax lawyers on hand to answer any questions you may have.
Schedule a free consultation today! Call 877-825-1179 or contact us online.