Tax Filing Tips

Employers who operate large food or beverage establishments must file Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips to report employee tip income.
A large food or beverage establishment is defined as business where all of the following apply:
Food or beverage is provided for consumption on the premises
Tipping is a customary practice
More than 10 employees, who work more than 80 hours, were normally employed on a typical business day during the preceding calendar year.
A worksheet for determining whether a business meets the criteria listed above is included in the Instructions for Form 8027. (http://www.irs.gov/pub/irs-pdf/f8027.pdf).

The employer reports the allocated tips in Box 8 of the employee's Form W-2; the allocated tips are not included in Box 1 as taxable wages.
The employee must include the tip amount in Box 8, as wage income on Form 1040, Line 7 and also enter the amount on Form 4137 to determine the employee's share of the FICA tax liability.

If you receive tips as a self-employed person, you should report these tips as income on Schedule C

If you received $20 or more in cash and charge tips in a month from any one job and did not report all of those tips to your employer, you must report the social security and Medicare taxes on the unreported tips as additional tax on your return.
To report these taxes, use Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to figure these taxes.
The unreported tips must be included as Wages on Form 1040, Line 7.

If your employer does not give you any other way to report your tips, you can use Form 4070, Employee's Report of Tips to Employer. Fill in the information asked for on the form, sign and date the form, and give it to your employer.
Give your report for each month to your employer by the 10th of the next month. If the 10th falls on a Saturday, Sunday, or legal holiday, give your employer the report by the next day that is not a Saturday, Sunday, or legal holiday.

If you do not report tips to your employer as required, you may be subject to a penalty equal to 50% of the social security and Medicare taxes or railroad retirement tax you owe on the unreported tips.
The penalty amount is in addition to the taxes you owe.
You can avoid this penalty if you can show reasonable cause for not reporting the tips to your employer.
To do so, attach a statement to your return explaining why you did not report them.

If your total tips for any 1 month from any one job are less than $20, do not report the tips for that month to that employer.
Report to your employer only cash, check, and debit and credit card tips you receive.
If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. Do not report to your employer any portion of the tips you receive that you pass on to other employees. You must report tips you receive from other employees.
If your employer does not give you any other way to report your tips, you can use Form 4070, Employee's Report of Tips to Employer. Fill in the information asked for on the form, sign and date the form, and give it to your employer.
If you do not use Form 4070, give your employer a statement with Your name, address, and social security number.
Your employer's name, address, and business name (if it is different from your employer's name).
The month (or the dates of any shorter period) in which you received tips.
The total tips required to be reported for that period.
You must sign and date the statement. Be sure to keep a copy with your tax or other personal records.

To help determine if a tax professional is right for you, you may consider asking the following questions. What is your fee schedule and what services does the fee cover ? What is your general background including your degree and business experience ? How much experience do you have with small businesses in my industry ? Do you hold an active PTIN license ? Are you available year round to answer questions ? What is your policy on mistakes made on clients tax returns ? Do you pay the penalties. Do you offer other services, such as tax planning, general financial planning, budgeting or retirement planning ? How active are you in the business community? Are you familiar with my type of customers ?

Enrolled agents (EAs) must pass a tax exam given by the IRS and are authorized to represent taxpayers before the IRS. They may be former IRS agents who are qualified as enrolled agents based on their past service and technical experience. Enrolled Agents have passed a three-part, comprehensive IRS exam covering individual and business returns. They must adhere to ethical standards and complete 72 hours of continuing education courses every three years. Enrolled Agents have unlimited practice rights before the IRS, which means they can represent taxpayers for any tax matter.