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Wednesday, May 18, 2011

Accounting Questions, Granada Hills Tax Professional

I am constantly asked by clients whether or not tips and earned cash are taxable and need to be reported by law. Services include restaurant employees, baggage handlers at an airport, hairdressers, etc who receive gratuity for their services. Another big question is whether or not bonuses and commissions are taxable.
The answer to all of the above situation is yes. Even if you earn tips or even the full amount of your services that you provide in cash, this income must be reported on a W-2 as well as an individuals income tax return.
In general an employer will report withhold federal income tax, social security and Medicare tax from your W-2. This is then used for the employee to fill out their individual tax return. Often times however, tips or bonuses are not reported on the W-2 but still must be reported on your individual return.
Not sure if your tip or bonus is taxable. Take this tricky example. An employee is awarded a free service (say, a gift certificate to a restaurant or a massage at a local spa) as a reward for good performance (highest sales for the month, meeting a goal, etc). Is this gift taxable? Yes.
Note that your employer is required by law to provide you with your W-2 for the previous year no later than January 31!
If you have more questions about taxable and non-taxable sources of income – check our IRS’s page (link: http://www.irs.gov/businesses/small/article/0,,id=117613,00.html) or give me a call. Every situation is different and with over 27 years of experience I can guarantee that you will pay the least amount of taxes legally!
Give me a call today – 818 368 5374 or send me an email by clicking Granada Hills Tax Professional

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