Author: Leon Clinton

Do you work at a hair salon, barber shop, casino, golf course, hotel, or restaurant, or do you drive a taxicab? The tip income you receive as an employee from those services is taxable income.

Here are some tips about tips:

• Tips are taxable. Tips are subject to federal income and Social Security and Medicare taxes, and they may be subject to state income tax as well. The value of noncash tips, such as tickets, passes, or other items of value, is also income and subject to federal income tax.
• Include tips on your tax return. In your gross income, you must include all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.
• Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security, and Medicare taxes.
• Keep a running daily log of your tip income. Be sure to keep track of your tip income throughout the year. If you’d like a copy of the IRS form that helps you record it, please call.

Tips can be tricky. Don’t hesitate to contact the office if you have questions.

• By Leon Clinton
• June 27, 2017

National Hurricane Season is officially in progress. If you suffer damage to your home or personal property, you may be able to deduct the losses you incur on your federal income tax return. Here are ten tips you should know about deducting casualty losses:

1. Casualty loss. You may be able to deduct losses based on the damage done to your property during a disaster. A casualty is a sudden, unexpected or unusual event. This may include natural disasters like hurricanes, tornadoes, floods and earthquakes. It can also include losses from fires, accidents, thefts or vandalism.

2. Normal wear and tear. A casualty loss does not include losses from normal wear and tear. It does not include progressive deterioration from age or termite damage.

3. Covered by insurance. If you insured your property, you must file a timely claim for reimbursement of your loss. If you don’t, you cannot deduct the loss as a casualty or theft. You must reduce your loss by the amount of the reimbursement you received or expect to receive.

4. When to deduct. As a general rule, you must deduct a casualty loss in the year it occurred. However, if you have a loss from a federally declared disaster area, you may have a choice of when to deduct the loss. You can choose to deduct the loss on your return for the year the loss occurred or on an amended return for the immediately preceding tax year. Claiming a disaster loss on the prior year’s return may result in a lower tax for that year, often producing a refund.

5. Amount of loss. You figure the amount of your loss using the following steps:

• Determine your adjusted basis in the property before the casualty. For property that you buy, your basis is usually its cost to you. For property you acquire in some other way, such as inheriting it or getting it as a gift, you must figure your basis in another way.
• Determine the decrease in fair market value, or FMV, of the property as a result of the casualty. FMV is the price for which you could sell your property to a willing buyer. The decrease in FMV is the difference between the property’s FMV immediately before and immediately after the casualty.
• Subtract any insurance or other reimbursement you received or expect to receive from the smaller of those two amounts.

6. The $100 rule. After you have figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It does not matter how many pieces of property are involved in an event.

7. The 10 percent rule. You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10 percent of your adjusted gross income.

8. Future income. Do not consider the loss of future profits or income due to the casualty as you figure your loss.

9. Form 4684. Complete Form 4684, Casualties and Thefts, to report your casualty loss on your federal tax return. You claim the deductible amount on Schedule A, Itemized Deductions.

10. Business or income property. Some of the casualty loss rules for business or income property are different than the rules for property held for personal use.

If you have any questions or need assistance, don’t hesitate to call.

• By Leon Clinton
• June 24, 2017

Is your child a student with a summer job? Here’s what you should know about the income your child earns over the summer.

1. All taxpayers fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. Taxpayers with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability. If you have any questions about whether your child’s withholding is correct, please call the office.
2. Whether your child is working as a waiter or a camp counselor, he or she may receive tips as part of their summer income. All tip income is taxable and is, therefore, subject to federal income tax.
3. Many students do odd jobs over the summer to make extra cash. If this is your child’s situation, keep in mind that earnings received from self-employment are also subject to income tax. This includes income from odd jobs such as babysitting and lawn mowing.
4. If your child has net earnings of $400 or more from self-employment, he or she also has to pay self-employment tax. (Church employee income of $108.28 or more must also pay.) This tax pays for benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed just as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.
5. Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay–such as pay received during summer advanced camp–is taxable.
6. Special rules apply to services performed as a newspaper carrier or distributor. As direct seller, your child is treated as being self-employed for federal tax purposes if the following conditions are met:
   • Your child is in the business of delivering newspapers.
   • All pay for these services directly relates to sales rather than to the number of hours worked.
   • Delivery services are performed under a written contract which states that your child will not be treated as an employee for federal tax purposes.
7. Generally however, newspaper carriers or distributors under age 18 are not subject to self-employment tax.

A summer work schedule is sometimes a patchwork of odd jobs, which makes for confusion come tax time. Contact the office if you have any questions at all about income your child earned this summer season.

• By Leon Clinton
• June 21, 2017