Higginbotham-Baldeon Enrolled Agents, Inc.

Finally, December is here, and we wish everyone a Merry Christmas and a Happy New Year. This time, I bring an IRS update for qualified tip deduction. The One, Big, Beautiful Bill proposed regulations to identify occupations that customarily and regularly receive tips and define “qualified tips” that eligible taxpayers may claim as a deduction. First, the IRS includes a group of occupations into eight categories. Here are the following groups of occupations by category: Beverage and food service, entertainment and events (including gambling dealers), hospitality and guest services, home services, personal services, personal appearance and wellness (including barbers, hairstylists, manicurists, and others), recreation and instruction, and transportation & delivery. Employees with a W-2 and self-employed individuals with a 1099-NEC who receive qualified tips must both be in an occupation on the list and receive qualified tips. The proposed regulations provide a definition of qualified and not qualified tips which includes the following factors: Qualified tips must be paid in cash or an equivalent medium, such as check, credit card, debit card, gift card, tangible or intangible tokens that are readily exchangeable for a fixed amount in cash, or another form of electronic settlement or mobile payment application (excluding most digital assets) denominated in cash; Also, tips must be received from customers or, in the case of an employee, through a mandatory or voluntary tip-sharing arrangement, such as a tip pool; Tips must be paid voluntarily by the customer and not be subject to negotiation;  qualified tips do not include some service charges. For example, some restaurants impose an automatic 18% service charge for large parties and distribute that amount to servers, bussers, and kitchen staff. If the charge is added without no option for the customer to disregard or modify it, the amounts distributed to the workers from it are not considered qualified tips. Nevertheless, any amount received for illegal activity, prostitution services, or pornographic activity is not a qualified tip. Now, an update for people and businesses that process credit card payments with their clients will receive the Form 1099-K. The One, Big, Beautiful Bill retroactively reinstates the reporting threshold on Form 1099-K. For example, a seller on Amazon or eBay with a gross amount of reportable payment transactions to a payee that exceeds $20,000, and the number of transactions exceeds 200. Last, people with retirement accounts need to contact their financial institutions and withdraw their Required Minimum Distributions from their traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts by December 31, 2025, and by April 2026, if they reach age 73 in 2025. More good business tax stuff next month.  Remember, this is a very brief overview.  It is your responsibility to discuss any tax and financial changes with your professional advisor for assistance in evaluating your situation.  For details and specific assistance in applying the general information in this article, call us at your earliest convenience or contact your tax advisor. Provided by Pedro L. Baldeon, E.A., (321) 632-5726, a member of the National Society of Tax Professionals.