Terry D EA Posted February 17 Report Posted February 17 Coffee Shop is a single member LLC. There are two employees receiving direct tips so far no problem. The owner works the counter and has begin taking a portion of the direct tips. The direct tips are from the POS system. Is it correct that I put the owner on the payroll to tax the tips? Quote
Lee B Posted February 17 Report Posted February 17 No, the tips received by the owner should be added to the LLC's sales revenue. 4 Quote
Abby Normal Posted February 18 Report Posted February 18 If the LLC elected S corp status, the owner could be on payroll but if it's a Sch C, @Lee B is correct. 4 Quote
Slippery Pencil Posted February 18 Report Posted February 18 The owner may want to check the state's labor laws regarding owners & managers taking a portion of employees' tips. 5 Quote
Lee B Posted February 18 Report Posted February 18 13 minutes ago, Slippery Pencil said: The owner may want to check the state's labor laws regarding owners & managers taking a portion of employees' tips. Yes that would be a real problem in my state! 2 Quote
Terry D EA Posted February 18 Author Report Posted February 18 Thanks for all the responses. This company has just gotten started and I will strongly warn the owner against any involvement with any tips from any sources. 1 Quote
Lee B Posted February 18 Report Posted February 18 30 minutes ago, Terry D EA said: Thanks for all the responses. This company has just gotten started and I will strongly warn the owner against any involvement with any tips from any sources. It depends. If the owner is a SMLLC as a disregarded entity reporting on Schedule C and working at the counter, then the owner can receive tips and report them as sales revenue. What the owner cannot do is pool all of the tips and take a share of them. All of the tips made to the employees have to go to the employees. 1 Quote
Abby Normal Posted February 18 Report Posted February 18 14 hours ago, Slippery Pencil said: The owner may want to check the state's labor laws regarding owners & managers taking a portion of employees' tips. What if there are no employees working one day, and tips are still received? Does it still go to the employees? Quote
Slippery Pencil Posted February 18 Report Posted February 18 51 minutes ago, Abby Normal said: What if there are no employees working one day, and tips are still received? Does it still go to the employees? The owner should check his state's labor laws and discuss it with a labor attorney licensed in his state. 3 Quote
Lion EA Posted February 18 Report Posted February 18 https://www.irs.gov/businesses/small-businesses-self-employed/information-for-industries-where-tips-are-customary https://www.irs.gov/pub/irs-pdf/p3144.pdf https://www.irs.gov/pub/irs-pdf/i8027.pdf https://www.irs.gov/businesses/small-businesses-self-employed/tip-recordkeeping-and-reporting https://www.irs.gov/businesses/small-businesses-self-employed/fica-tip-credit-for-employers 1 Quote
BulldogTom Posted February 18 Report Posted February 18 4 hours ago, Slippery Pencil said: The owner should check his state's labor laws and discuss it with a labor attorney licensed in his state. That is the greatest passing of the buck on a tax/legal question ever. You know the client won't go to the lawyer because he expects the lawyer to bill him. Tom Longview, TX 1 1 Quote
Lee B Posted February 19 Report Posted February 19 The Fair Labor and Standards Act administered by the U S Dept of Labor Fact Sheet: "Employers, Including Managers and Supervisors, May Not “Keep” Tips: Regardless of whether an employer takes a tip credit, the FLSA prohibits employers from keeping any portion of employees’ tips for any purpose, whether directly or through a tip pool." "A manager, supervisor or owner may keep only those tips that they receive directly from a customer for the service they directly and solely provide. For example, a restaurant manager who serves their own tables may keep their own tips from customers they served but would not be able to receive other employees’ tips by participating in a tip pool." 2 1 Quote
Slippery Pencil Posted February 19 Report Posted February 19 1 hour ago, BulldogTom said: That is the greatest passing of the buck on a tax/legal question ever. You know the client won't go to the lawyer because he expects the lawyer to bill him. Tom Longview, TX It's not a tax question. It's a legal question and I'm not stupid enough to practice law without a license. 2 Quote
BulldogTom Posted February 19 Report Posted February 19 35 minutes ago, Slippery Pencil said: It's not a tax question. It's a legal question and I'm not stupid enough to practice law without a license. Sorry, I wasn't trying to offend, I thought I was being funny, but I am just striking out today. Sorry I ruffled your feathers. Tom Longview, TX Quote
Terry D EA Posted February 19 Author Report Posted February 19 21 hours ago, Lee B said: The Fair Labor and Standards Act administered by the U S Dept of Labor Fact Sheet: "Employers, Including Managers and Supervisors, May Not “Keep” Tips: Regardless of whether an employer takes a tip credit, the FLSA prohibits employers from keeping any portion of employees’ tips for any purpose, whether directly or through a tip pool." "A manager, supervisor or owner may keep only those tips that they receive directly from a customer for the service they directly and solely provide. For example, a restaurant manager who serves their own tables may keep their own tips from customers they served but would not be able to receive other employees’ tips by participating in a tip pool." The second part is exactly what the owner claims they are doing which I know is the truth because I've been there several times and had to wait on the owner to finish with customers at the counter. The 6million dollar question is how do you prove it? This is also why I asked about setting the owner up on payroll for proper withholdings. My thoughts are to set up the POA system with employee numbers for the employee to enter when ringing up a sale. That way the tip would go to the right person and there lies the proof. Yes???? Quote
Lee B Posted February 20 Report Posted February 20 Terry, you still haven't explained what kind of tax entity your client's SMLLC will be filing? Quote
Terry D EA Posted February 20 Author Report Posted February 20 Sorry it is a partnership with one limited partner. Quote
Lion EA Posted February 20 Report Posted February 20 One general partner who works in the business and one limited partner who does not? Quote
jklcpa Posted February 20 Report Posted February 20 16 minutes ago, Terry D EA said: Sorry it is a partnership with one limited partner. I'm confused because your original post said it was a SMLLC. 3 Quote
Terry D EA Posted February 21 Author Report Posted February 21 Sorry I guess I did say that. Maybe its time for a break. It is a partnership with one who works in the business and one who does not. Quote
jklcpa Posted February 21 Report Posted February 21 @Terry D EA, to answer your question about putting the one owner on payroll with a W-2 for tips, you can't do that because partners aren't on payroll and don't receive a W-2. I think Lee gave you the answer from the FLSA he posted. 1 Quote
Terry D EA Posted February 21 Author Report Posted February 21 Working with this owner, they have agreed to not take any tips at all. They just started this year and getting all the kinks ironed out, plus being overwhelmed by me. i have found out the owner has not taken any tips. They have been giving me the tips each employee has earned and the remainder they have not touched so I informed them that was great they have done that and the excess is revenue. Part of this confusion was the owner explaining what they were doing so I think we're all good now. 1 Quote
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