Tips to handle tips and other summer income
Summer brings longer days, more sun and the opportunity to earn extra income. From lifeguarding to lemonade stands, there are a lot of ways to make money. While these extra funds are great, there are tax considerations to take into account.
Many summer jobs include wages from tips. Employees that received over $20 in a month should use Form 4070 or any other daily record to record all tips received. Listed below are some tips for your tips:
- Record the amount of tip-outs paid
- List the employees that the tip-outs were paid to
- List tip information everyday
- Report this information to the employer on the 10th day of the month after the tips are received
Cash paid for work, like tips, may seem easy to forget come tax time; however, cash income needs to be reported on tax returns as if it were a check or direct deposit. Especially because cash payments leave no paper trail, extra caution is required when filing returns. See here for more information about how to handle cash payments for a summer job.
Garage sales are another way to make a little extra income over the summer. Unfortunately, garage sales are not exactly a profitable endeavor. Most of the time, the items sold are sold at a loss. If, however, an item is sold for more than its original cost, then the excess is capital gain which must be reported on the tax return. One alternative to selling items at a garage sale is to donate them to a charity. If given to eligible organizations, donated items can lead to a possible itemized tax deduction.
With summer also comes graduation, and many graduates receive cash or other gifts. While doing a little extra work in the summer is a good way to have extra income, unexpected gifts are always appreciated. But do these gifts need to be reported as income to the IRS? Graduation gifts are not taxable to the recipient. However, if the gift exceeds the $14,000 annual gift exemption, the donor must report the gift to the IRS.