5 My restaurant does something weird where they add an "assumed cash tip" percentage to our reported income even when we honestly report everything. Is that legal??

Been serving for about 2 years now and wanted to share what I've learned about cash tip taxes since I was in the same confused boat when I started! Yes, when you report cash tips on your checkout form, those get added to your total taxable income for that pay period. Your employer should then withhold taxes on ALL your tips (cash + credit card) from your paycheck. This is why you'll sometimes see really small paychecks even after a good night - the taxes on your cash tips are being taken out of your credit card tip money. One thing that caught me off guard early on: if you have a really good cash night but low credit card tips, there might not be enough in your paycheck to cover all the tax withholding. When that happens, you'll owe the difference when you file your taxes in April. My advice is to set aside about 25-30% of your cash tips in a separate envelope or savings account, just in case. Better to have too much saved than get hit with a surprise tax bill! Also definitely keep your own daily tip log - don't just rely on what the restaurant tracks.

2 Make sure you keep ALL your receipts and documents! I did some independent contracting last year and got audited because I claimed a home office deduction without proper documentation. What a nightmare!

Great question! As a fellow independent contractor, I'd strongly recommend setting aside 25-30% of your gross income for taxes. This covers both federal income tax and the dreaded self-employment tax (15.3% for Social Security and Medicare). Since you're new to this, definitely look into making quarterly estimated tax payments if you expect to owe more than $1,000. The IRS penalties for underpayment can add up quickly! For deductions, you're in a great position as a swim instructor. Definitely track your mileage - use the standard mileage rate (currently around $0.67/mile for 2024). Keep a detailed log of every trip to clients' homes. Other deductions to consider: swim equipment, certifications, liability insurance, phone usage for scheduling, and even a portion of your internet if you use it for business communications. One tip: open a separate business checking account and credit card. It makes tracking expenses so much easier come tax time. Also consider getting a simple mileage tracking app - MileIQ or similar services can save you hours of manual record-keeping. Don't forget about the Qualified Business Income (QBI) deduction either - you might be able to deduct up to 20% of your business profit!

Slightly off topic but has anyone used cost segregation with bonus depreciation for apartment buildings recently? My K1 shows huge depreciation but I'm worried about depreciation recapture when we sell the property in 5-7 years. Especially since bonus depreciation is phasing down now (80% for 2023, 60% for 2024, etc). Seems like it just creates a tax time bomb for later.

You're absolutely right to be concerned about depreciation recapture! With bonus depreciation, you're essentially accelerating deductions that would normally be spread over 27.5 years for residential rental property. When you sell, all that bonus depreciation gets recaptured at a 25% rate (plus any regular depreciation recapture). The math can be brutal - if you took $200K in bonus depreciation over a few years, you're looking at $50K in recapture taxes at sale. Some investors are actually electing out of bonus depreciation for this reason, especially if they're not real estate professionals who can use the losses against ordinary income. One strategy to consider is a 1031 exchange when you sell to defer the recapture, but that just kicks the can down the road. The other approach is to make sure the tax savings today (especially if you can use them against high ordinary income rates) exceed the future recapture costs when discounted to present value. Have you run projections on what the recapture will look like at your expected sale price and timeline? It might influence whether you even want to elect real estate professional status or just treat it as passive income.

whatever u do dont use those sketchy tax places that take like half ur refund 🤮

Just want to add that you should also look into the Additional Child Tax Credit if you qualify. With your income level and 2 kids, this could add even more to your refund on top of what others mentioned. Also make sure you have all your documents ready - W2, childcare receipts, etc. The IRS is pretty backed up this time of year so having everything organized will help speed things up!

I'm dealing with a similar situation and want to add one important point that might help. When you defer 100% of your S-Corp salary to a Solo 401k, make sure you're also considering the impact on your personal tax situation. Even though Box 1 on your W-2 will show $0, you'll still want to verify that you have enough withholding or estimated tax payments to cover any other income sources. Also, double-check that your Solo 401k provider can handle employer contributions properly. The $5,250 match you mentioned should be deposited separately from your salary deferrals, and some providers have specific procedures for this. I learned this the hard way when my initial provider couldn't process the employer match correctly for my S-Corp setup. One last thing - keep detailed records of your reasonable salary determination. Even though you deferred it all, the IRS may still want to see documentation of how you arrived at the $21,000 figure in case they ever question whether it's truly reasonable for your type of business and time commitment.

This is a great question and you're definitely on the right track! I went through something very similar with my S-Corp last year. You're correct that Box 1 should show $0 since you deferred your entire salary, and the $21,000 goes in Box 12 with code D. However, here's the critical part that trips up many S-Corp owners: you still owe FICA taxes on the full $21,000 even though it was deferred to your 401k. This means Boxes 3 and 5 on your W-2 should show the full $21,000 for Social Security and Medicare wages. If you haven't been making quarterly payments for these taxes throughout the year, you'll need to catch up now - that's about $3,206 total (15.3% of $21,000) split between employer and employee portions. Also, make sure your Solo 401k was properly established with all required documentation before you made the deferrals. The employer match doesn't appear on your W-2 since it's not considered wages, but it should be deposited separately into your 401k account. For your 1120S, the salary expense and employer portion of FICA taxes are deductible business expenses. Don't forget to file Form 941 for the quarterly payroll taxes even if you're catching up late - there may be penalties, but it's better to file than not file at all.