How to Report Restaurant Tips as Income in Financial Statements
Waiters and waitresses make most of their earnings via tips. In most states, waiter wages are lower than the minimum wage for other types of employment. The assumption is the waiter will end up making at least minimum wage, if not more, with the supplementation of tips. Tips and wages are forms of income, and both must be claimed for tax purposes.
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Instructions
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Keep a tip diary. Purchase a small notebook and write down the date and the tip monies that you brought home with you. Do not include money that you paid other employees. For example, if you made $100 on night, and gave the bartender a $10 tip-out, write down that you made $90 in tips in your tip diary.
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Consider using the IRS Form 4070A, Employee's Records of Tips. Ask your employer for Publication 1244, Employee's Daily Record of Tips and Report to Employer. This document includes a one-year supply of Forms 4070A to help you with your recordkeeping. Publication 1244 may also be obtained directly from the IRS.
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Keep your cash-out receipts if you work in a restaurant that has a computerized system. Many point of sale software packages for restaurants let you print out your own records. Ask your manager if you do not know how to do this. You cash-out receipts contain your sales, hours worked and claimed tips.
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Recognize the difference between automatic gratuities and service charges on customer receipts. An automatic gratuity is charged to the customer as all or part of your tips. Automatic gratuities are included in your tip income. Service charges, however, are not tips. A service charge is added to the customer's bill, and goes to the owner of the restaurant. If the service charge is paid to you, it is considered part of your wages and not included in your tip income.
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Claim your tip income on Line 7 of your Form 1040 when you file your personal income tax.
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