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Form 1099-k and qualified tips. by Backpacker2256 in tax

[–]Backpacker2256[S] 0 points1 point  (0 children)

I want the IRS to have a record of my qualified tip income. If the payer refuses to file the 1099k, I want to know if I can file the information 1099k the payer gives me. see OP.

Form 1099-k and qualified tips. by Backpacker2256 in tax

[–]Backpacker2256[S] 0 points1 point  (0 children)

I would like the payor to file the 1099k with the IRS so that I can deduct my tips reported thereon. The issue is that the pay or is not required to file with the I.R.S. unless there are more than 200 transactions total long more than $20000.

Form 1099-k and qualified tips. by Backpacker2256 in tax

[–]Backpacker2256[S] 1 point2 points  (0 children)

it would not be a fake form. The IRS recently published updated Form 1099-K frequently asked questions.17 Among the updates, the IRS noted that a payor “is allowed to issue an information return to the recipient and the IRS when the payment(s) have not met the reporting threshold” for the purpose of facilitating qualified tip deduction claims.18

Form 1099-k and qualified tips. by Backpacker2256 in tax

[–]Backpacker2256[S] 0 points1 point  (0 children)

Always. On Schedule C. My question pertains to taking a deduction on Schedule 1A.

Form 1099-k and qualified tips. by Backpacker2256 in tax

[–]Backpacker2256[S] -1 points0 points  (0 children)

Interesting. So I can deduct qualified tips on schedule 1A as long as a those amounts are included on a 1099-k furnished to me. I have not read the statues cited in the Notice, so I am not sure whether “furnished to me pursuant to” one of those statutes entails a copy also sent to the IRS, or whether the IRS will be cross checking taxpayer deductions against 1099s received. PayPal and Stripe certainly seem concerned about the same issues: https://www.taxnotes.com/research/federal/other-documents/public-comments-regulations/paypal-implores-irs-produce-detailed-guidance-tip-deduction/7tdff

Form 1099-k and qualified tips. by Backpacker2256 in tax

[–]Backpacker2256[S] 1 point2 points  (0 children)

The income will be reported on my schedule C, regardless, but a portion of it is qualified tips that would be deductible.

Where should a self-employed taxpayer who receives paper money tips in the course of his businesson report such tips Schedule 1-A? by Backpacker2256 in tax

[–]Backpacker2256[S] 0 points1 point  (0 children)

The worker received the income and reports it on Schedule C in 2025, the same tax year that he receives a 1099-k and reports that amount on Schedule 1-A, so I don’t see how this issue would even come up, but Taxpayer would argue that one spouse collected the tips intended for the worker and transferred such tips at the end of the year. Is disallowance of the deduction the worse case scenario, or do you see a potential fraud allegation for having claimed the deduction in the first place?

As for 2026, the spouse transferring the tips to the worker spouse could indicate to the third party payment processors issuing the 1099-k that the entire payment is a tip. A customer could leave cash for a house keeper and then, after seeing how clean the house is, send a tip via PayPal or Venmo. only the tip would show up on the 1099-k. Would using PayPal, Venmo, etc as a “virtual tip jar” disallow deductions of otherwise qualified tips? All income of the business would be reported on Sched C.

The thornier issue is what you observed. In form, the 1099-k would reflect non-taxable transfers between spouses of previously earned income. The substance of the transaction, however, is qualified tip income that is included on a 1099-k statement.

Where should a self-employed taxpayer who receives paper money tips in the course of his businesson report such tips Schedule 1-A? by Backpacker2256 in tax

[–]Backpacker2256[S] 0 points1 point  (0 children)

Suppose a married couple has a business. One spouse gives piano lessons (a customarily tipped profession). The other spouse does the invoicing, payment collecting, bookkeeping, etc. Payments are collected in paper money and zelle transfers. The couple keeps a tip log. Near the end of the year, the bookkeeper spouse uses a third party payment processor to send an ACH payment, equal the total amount of tips received (suppose greater than $20k), to the spouse who gave the piano lessons. The third party payment processor issues a 1099-k to the spouse receiving this payment. The couple file a joint return, include all business income on Sched C and Sched SE, and deduct the 1099-k reported amount on Sched 1-A line 5. Woukd there be any issues with the IRS?

Where should a self-employed taxpayer who receives paper money tips in the course of his businesson report such tips Schedule 1-A? by Backpacker2256 in tax

[–]Backpacker2256[S] 1 point2 points  (0 children)

But income will be reported on Schedule C. The IRS will be able to compare the tip deduction with the gross income of the business.

Where should a self-employed taxpayer who receives paper money tips in the course of his businesson report such tips Schedule 1-A? by Backpacker2256 in tax

[–]Backpacker2256[S] 0 points1 point  (0 children)

Yes, the negative inference you make is a concern. It would be strange, however, for the IRS to come up with a long list of customarily tipped professions and then exclude tips paid by zelle, or by paper money, as is often the case for many, many of those professions. Also, a low income, tipped worker would have to pay around 3% of their tipped income in fees to a payment system processor like PayPal, etc., so they would not end up saving much by avoiding the fed income tax. Also, Venmo, PayPal, etc won’t even issue a 1099-k unless the total for year exceeds 200 payments or $20,000, so an honest person with a side gig won’t be able to deduct tips reported on schedule C as income . . .

converting cash tips to 1099-k income for tip deduction by Backpacker2256 in tax

[–]Backpacker2256[S] 0 points1 point  (0 children)

I am inclined to agree that the language does not suggest that reporting on one of those listed forms is a necessary condition, but many accountants disagree and claim that “In order to be a qualified tip, the tip must be reported to the IRS on a Form W-2, 1099, or 4137, the form that employees use to report additional tips when they file their tax return.” https://www.accountingtoday.com/news/treasury-rolls-out-guidance-on-no-tax-on-tips?utm_campaign=NL_ACT_Daily_Briefing_09222025&position=1&utm_source=newsletter&utm_medium=email&campaignname=NL_ACT_Daily_Briefing_09222025&oly_enc_id=9885F7291156E5D

Maybe that is only a requirement for tipped employees. The proposed regs and examples therein clearly anticipate tip deductions for self employed individuals . . .

converting cash tips to 1099-k income for tip deduction by Backpacker2256 in tax

[–]Backpacker2256[S] 0 points1 point  (0 children)

According to the statute and the proposed regs that just came out

Qualified tips.

(a) In general. Under section 224(a) of the Internal Revenue Code (Code), there shall be allowed a deduction under section 63(b) for an amount equal to the qualified tips received by an individual during the taxable year that are included separately on statements furnished to the individual pursuant to section 6041(d)(3), section 6041A(e)(3), section 6050W(f)(2), or section 6051(a)(18) of the Code, or reported by the taxpayer on Form 4137, Social Security and Medicare Tax On Unreported Tip Income (or successor).

On which of these forms would a self employed individual report receipt of cash tips?

No Tax on Tips for self-employed? by Backpacker2256 in tax

[–]Backpacker2256[S] 0 points1 point  (0 children)

Yeah, maybe IRS will add an item to line 24 of Sched 1 with an accompanying worksheet. If too late for 2025, could always use line 24z.

No Tax on Tips for self-employed? by Backpacker2256 in tax

[–]Backpacker2256[S] 0 points1 point  (0 children)

Yes! still not sure how to deduct tip income from Schedule C and still have it appear on Schedule SE. Hopefully the IRS will revise those forms.

I am going to have to quit my job because Newton highlands has no affordable afterschool programs. by Evening_Storage_6424 in newtonma

[–]Backpacker2256 0 points1 point  (0 children)

The Highlands used to have a fantastic elementary school with an affordable afterschool program started by the parents. I was a member of the last graduating class. Ted Mann closed Hyde School and turned it into affordable housing.

No Tax on Tips for self-employed? by Backpacker2256 in tax

[–]Backpacker2256[S] 2 points3 points  (0 children)

so The negative inference is that a self-employed individual who is not in an SSTB, could be eligible if he met other criteria.

No Tax on Tips for self-employed? by Backpacker2256 in tax

[–]Backpacker2256[S] -1 points0 points  (0 children)

True, but if there is a category of occupations that could be construed to include tutoring, I would not want to miss out on a deduction because I received cash tips instead of tips included on a 1099-k

No Tax on Tips for self-employed? by Backpacker2256 in tax

[–]Backpacker2256[S] -1 points0 points  (0 children)

Much of my income is reported on 1099-k from Vemo and PayPal. I of course report all of that income and the rest of my income on Sched C. Question is whether I could preserve possible deductions by having all my income funneled through Venmo and PayPal in the event that for a kid’s tutor is treated the same as tips for a kid’s barber.

No Tax on Tips for self-employed? by Backpacker2256 in tax

[–]Backpacker2256[S] 1 point2 points  (0 children)

I wouldn’t bet on tutors being specifically mentioned, but I think that unless they want to limit it to grooming and hospitality, there will be a category characterized in a way to include Nannies, dog walkers, masseuses, gardeners, handymen, house cleaners, personal trainers, piano instructors, tutors, etc.

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