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How to Report Tips to the IRS

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From Quick Guide: IRS Careers

Summary: Be sure to report case income on your tax forms. Learn how to handle reporting cash and tips to avoid a tax audit from the IRS in this free personal finance video from an experienced accountant.

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By Diana Crawford
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Diana Crawford is a CPA with more than 20 years of public accounting experience. She is a graduate of Georgia State University with a bachelor's degree in accounting.read more

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Video Transcript

"How to avoid an IRS audit. What to do if you've received a lot of cash as an income. How do you get the cash that you receive onto your income tax return? And, what happens if the IRS comes to audit you, how you verify that the cash that you received actually made it to your cash return? You don't take a photo copy of all the cash that you receive to prove that this ultimately was on your tax return. But you need some other way of proving that the income that you received was reported. It would be based on your lifestyle. How is the cash that you receive used to pay expenses? So, if your expenses exceed your income, then it's likely that if you're in a cash based business, that there's some cash that you received as income that's not being reported. So, you want to be conscientious that if you're in one of those industries, that you are accounting for the cash that comes in, you're reporting it properly, and that that's being reported on your return. The IRS knows from the information that you have either on the schedule C, or the information that you report about what your occupation is, that you might be in a business that receives a lot of cash. And, if you do receive a lot of cash, you need to make sure that that cash is being reported on your return and that there is a reasonable method from what you received and what you expended match up with each other. That can really help you avoid an IRs audit if you receive a lot of your income in cash."

eHow Article: How to Report Tips to the IRS

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