Record tips as business income, one entry per day or per payment, with the date, amount and whether they came in cash or by card, and keep them in their own Tips category. The IRS says all cash and non-cash tips are income. For the 2025 to 2028 tax years, a qualified tips deduction of up to $25,000 a year may apply to some self-employed people. Many ProfitDrawer trade spreadsheets, such as lash tech and barber, include a Tips income category.
How to set it up:
- One category. Add a Tips income category so you can see the total for the year. Card tips arrive with the payment; split them from the service price when you record it.
- Daily cash total. Note cash tips at the end of each day; a weekly guess is hard to support later.
- Non-cash tips. Gifts of value given as a tip, such as event tickets, count too: record the date and value.
- Card and app tips show on your statements, which helps you check your totals.
The 2025 to 2028 qualified tips deduction: employees and self-employed people in occupations the IRS lists as customarily receiving tips may be able to deduct qualified tips, up to $25,000 a year. It phases out above $150,000 of modified adjusted gross income ($300,000 for joint filers), and for the self-employed it cannot exceed the net income of the business where the tips were earned. A separate tips record makes the deduction much easier to figure.
If you have employees who receive tips, they must keep a daily tip record and report tips to you.
General information, not tax advice.
Source: Tip recordkeeping and reporting · Updated
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General information, not tax, legal or financial advice. Check the rules for your state and your situation.