Keeping track of income and expenses is essential, even if you don't own a business. And if you do own a business, things get even more complicated. There are paychecks to issue, taxes to track, and subcontractors to pay out. All of these details are a whole lot less challenging when you hire an accountant to oversee them. However, it is still important to know a little bit about accounting yourself. Dig into the articles on this website, and you'll gain a better understanding of accounting principles, what services accountants really offer, and the benefits of hiring these professionals to assist with your finances.
For many people in the service industry, dealing with tips is an essential but sometimes challenging part of earning a living. Do you have trouble keeping up with the rules about reporting tips to your employer and to the IRS? If so, it may help to understand the value of reporting on a regular basis rather than falling behind or being haphazard.
What are some of the benefits of doing so?
1. Accuracy Is Easier. The sooner your record or report the information about a transaction, the easier it will be to reconstruct it. Service industry workers are usually a busy bunch, and they have varying schedules and demands. So if you wait, you're more likely not to be able to be completely accurate in your numbers or recollection.
2. Taxes Match Earnings. Your employer is required to calculate withholding and payroll taxes on what you report as tips during a given pay period. So, if you report those tips quickly, the taxes will be withheld against your current income and match what you actually earned. But if you report tips late, you'll be paying taxes in one period against income earned long before it — and that is likely long gone.
3. It's the Law. IRS regulations stipulate that tips over $20 should be reported to your employer by the 10th of the following month. Failure to do so could get you in trouble with the IRS if your taxes are ever audited. The last thing any taxpayer wants is to give the impression that they are trying to skirt the rules or evade taxes.
4. Tips Boost Social Security. One reason that each taxpayer must report tips is so that Social Security and Medicare taxes may be calculated and paid. While it's no fun to pay these taxes, accurate reporting does help you in the long run. Since it's difficult for many tipped workers to save, this could be a vital part of your retirement plans.
5. You Won't Wonder. Want to get one more thing off your plate? Most Americans could use fewer items to worry about. If you report tips regularly and make the process simple, you won't have to guess whether or not you've done it. And when you meet with your tax preparer each spring, you won't have to add up months with tips under the IRS threshold, so you can simply check the box that you've reported everything and move on.
Every task is made a little easier when you understand how it benefits you. Reporting all of your tips when they occur is one of these small jobs that add up to bigger time and money savings later on. To learn more about accurate tip reporting, consult with a tax preparation service, like Hough & Co CPA, today.