Did you know that you’re required to report all of your income on your taxes, even if it’s not directly from an employer? This extends to income from tips. While it’s tempting to treat that money as being “off the books,” it’s a tax violation to not report it. And, it’s actually beneficial to you in the long run to report that money. Read on to find out why!
Strengthen Your Credit
One of the most important benefits of reporting tip income is that it improves your financial image on paper. If you ever want to buy a car or a house or open a line of credit, looking good on paper is crucial!
You may know that you have your finances in order, but if your financial records don’t reflect a healthy income, you may be denied credit in crucial situations. Reporting your tip income is one way you can ensure that your “on paper” financial situation accurately matches up with reality.
Preparation for Emergency Situations
It’s not exactly pleasant to think about what would happen if you lost your job or had to apply for government benefits. However, it’s better to think about it and plan ahead instead of scrambling in the moment.
If you have to apply for unemployment benefits, the amount of your benefit will be based on your previously reported income. If you don’t report your tip income as you go along, then you wont be eligible to receive the right amount of coverage in the event of job loss.
In the short-term, it might seem like it’s better to not report tip income so you don’t have to pay taxes on it. However, when you look at it in a long-term frame of mind, it’s vital to report it!
For more information on income reporting or other tax code topics, contact the experts at Taxation Solutions, Inc. today. We’re here to help clients in San Antonio and the surrounding area with tax questions, tax filing, IRS audits, and more.