Former salon manager here. What your wife's employer is doing is unfortunately common practice in some salons, but it's definitely not right. Here's why they're doing it: when tips are properly reported, the business has to pay the employer portion of Social Security and Medicare taxes on those tips. By telling employees to "handle it themselves," they're avoiding these costs. For credit card tips specifically, this is extremely sketchy because there's already a paper trail. The IRS can easily see that the business processed credit card tips but didn't report them properly on W-2s. Your wife should absolutely keep her own detailed records of ALL tips received, noting which were cash and which were credit card. This will protect her if there's ever an audit.

Just want to add - check your state laws too! Some states have additional requirements for tip reporting and minimum wage calculations for tipped employees. In my state, employers who take a tip credit have to provide written notification to employees about tip reporting procedures. Also, if your wife is getting health insurance or other benefits through this job, unreported income could affect her qualification or subsidy amounts if she's getting coverage through the ACA marketplace. It really can create a cascade of problems beyond just the IRS issues others mentioned.

Something nobody mentioned yet - you should really look into getting a proper business license and registering your art business with your state/city! I learned this the hard way. I ran my design business for 2 years just treating it as extra income before finding out I needed a business license in my city. Got hit with back fees and a small penalty. Each place has different requirements, but usually there's a simple business registration you need to file. Also, once you're official, you can get a resale certificate which lets you buy supplies without paying sales tax (since your customers pay the tax when they buy from you). Saved me thousands on materials alone.

Just wanted to share what worked for me as a glass artist: I use the "profit first" system where I have multiple business accounts that I transfer specific percentages into: - One account for taxes (25-30% of income) - One for business expenses (30-35%) - One for business profit (5-10%) - One for owner compensation (rest) Every time money comes in, I immediately split it into those accounts. This way I'm always setting aside tax money and know exactly how much I can spend on supplies vs take as personal income.

For a more visual approach, I found "The Complete Guide to Your Personal Finances Online" by Scott Bilker really helpful. It has flowcharts and decision trees that make the tax code more visual. The book has a whole section on real estate with clear examples showing how different scenarios affect your tax liability.

Have u guys tried any of the tax softwares like TurboTax or H&R Block? They basically walk u thru everything step by step and explain the tax code as u go. Might be cheaper than buying a bunch of books?

Adding to the discussion on income-only taxation - one major issue not considered is wealth inequality. Income tax only targets active earnings, but much of the wealth held by the ultra-rich isn't in regular income but in appreciating assets like stocks, real estate, etc. This is why many economists argue for some form of wealth taxation alongside income taxes. If we eliminated property taxes, capital gains taxes, etc., we'd basically be giving a permanent tax holiday to those who live primarily off assets rather than wages. Also, consumption taxes can actually be beneficial for economic stability because they provide a more consistent revenue stream during recessions when incomes might fall dramatically. No perfect system exists, but a balanced approach with simplified versions of different tax types probably makes more sense than going all-in on just income taxation.

Having lived in 6 different countries, I've experienced many tax systems firsthand. The simplest wasn't necessarily the best. In Singapore, they have very straightforward taxes, but it created other societal issues. In the Nordic countries, taxes are high but extremely transparent in how they're calculated and spent. The problem with income-only taxation is it misses huge parts of economic activity. For example, tourism: visitors consume resources but would pay zero under income-only systems. One approach I liked was in New Zealand, where they have a fairly simple GST (goods and services tax) applied broadly with very few exemptions, combined with a progressive income tax. The simplicity wasn't from having just one tax, but from having few exemptions and very clear rules.

Something nobody's mentioned yet - if you're in a high property tax state like NJ, NY or CA, the $10k SALT cap (State And Local Tax deduction limit) really affects whether mortgage interest helps you. My property taxes alone are $14k, but I can only deduct $10k of that. So even with $12k in mortgage interest, my itemized deductions barely exceed the standard deduction for married filing jointly. Before the 2017 tax law changes, having a mortgage was a no-brainer tax benefit for most homeowners. Now it really depends on your specific situation.

Remember that even if mortgage interest isn't giving you a tax benefit now, if interest rates rise and your income increases, that could change in the future. I've seen ppl pay off mortgages then regret it when their tax situation changed a few years later and they could have benefited from the deduction. Also don't forget about inflation! $300k debt today will feel like much less in 15-20 years with normal inflation.