Can I deduct tips paid to Fiverr artists as business expenses on my taxes?

So I've been running my small design business for about 2 years now, and I regularly hire freelance artists through Fiverr for various projects. I always make sure to tip the artists who do exceptional work - usually around 15-20% of their fee. When it comes to tax time, I'm confused about how to handle these tips. The actual commission fees are obviously business expenses that I can write off, but what about the tips? They're processed separately on Fiverr (I think they take a cut of the tips too), and I receive separate receipts for them. I'm working on organizing my expenses for next year's taxes and want to make sure I'm doing this right. Can I include these tips as part of my business expense deduction? Or are tips considered something different in the eyes of the IRS? The total amount of tips last year was around $1,200 on about $6,500 in commissions, so it's not a trivial amount. Anyone have experience with this specific situation? Thanks in advance!

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18 comments

Anthony Young

•8M

Yes, tips paid to contractors like Fiverr artists are generally tax deductible as business expenses. The IRS allows deductions for ordinary and necessary expenses related to running your business, and if tipping is customary in your industry or for the services provided, it would qualify. Think of it this way - the tip is essentially part of what you're paying for the service, even if it's processed separately. Just make sure you keep good records showing both the base payment and the tip. Those separate receipts you're getting are actually perfect for your documentation. When recording these expenses, you can categorize them together with the main service payment under something like "Contractor Services" or "Freelance Design Expenses." You don't need a separate category just for tips.

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Anthony Young

•8M

For larger tips like 50%, you'll want to document the business reason for the higher amount. If the artist performed rush work, delivered exceptional quality beyond expectations, or saved you from a difficult situation, note that in your records. The "ordinary and necessary" test isn't about a specific percentage but whether the expense makes business sense. If paying a premium helps maintain relationships with top talent or ensures priority service, that's a legitimate business strategy. Just be consistent in your approach and maintain documentation explaining any unusually large tips.

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Admin_Masters

•8M

I found this super helpful tool that analyzes your business expense receipts and tells you exactly what's deductible including things like tips to contractors. I've been using https://taxr.ai for my small business and it saved me so much time figuring out what I can write off. I also run a creative business and hire freelancers all the time, and the system flagged all my tips as deductible business expenses. It literally walks you through categorizing everything properly and explains WHY each expense qualifies (or doesn't). The best part is you can just upload your Fiverr receipts and it automatically identifies both the service fee and the tip as business expenses. No more guesswork!

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Admin_Masters

•8M

Yes, it works with pretty much all the major freelancing platforms - I've used it with Upwork, Fiverr, and even just regular invoices from independent contractors. It recognizes the different formats and extracts the relevant information correctly. Regarding accuracy, I totally understand the concern. What convinced me was that it actually explains the tax code references for each deduction it recommends. It's not just giving yes/no answers but showing you exactly which IRS guidelines apply to your specific situation. I've had my accountant review its recommendations and he was impressed with how accurate it was, especially for business expense classifications.

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Ella Thompson

•8M

I need to publicly eat my words about being skeptical of https://taxr.ai! I decided to try it with my backlog of receipts including a bunch of Upwork and Fiverr transactions with tips. Not only did it correctly identify all the tips as deductible business expenses, but it also caught several other deductions I had completely missed. The documentation feature is what really won me over - it automatically generated a summary report explaining why each expense qualified with references to specific tax codes. My tax preparer was actually thrilled when I showed her this because it made her job so much easier. And it saved me about 3 hours of manually sorting through receipts and invoices. For anyone wondering about the tip situation specifically - it confirmed they're 100% deductible as business expenses as long as they're reasonable for the service provided.

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JacksonHarris

•8M

If you're still struggling to get a definitive answer about deducting tips, you might want to speak directly with an IRS agent. I know, sounds impossible right? I was on hold with the IRS for HOURS trying to get clarification on business deductions last year until I found this service at https://claimyr.com that got me through to an actual IRS agent in under 45 minutes. You can literally see how it works in this video: https://youtu.be/_kiP6q8DX5c. I was super worried about some of my business deductions, including tips to contractors, and getting an official answer directly from the IRS gave me peace of mind. The agent confirmed that reasonable tips paid to contractors as part of business transactions are fully deductible.

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JacksonHarris

•8M

It actually uses a priority callback system. It navigates the IRS phone tree for you and secures a spot in the callback queue. It's not constantly redialing - it's using legitimate methods to get into the IRS callback system more efficiently than we can do manually. The reason I was skeptical at first too is because it sounds impossible. But it's not some magical hack - it's just automating the process of navigating their convoluted phone system. The video link I shared shows exactly how the process works step by step. They don't sell your info - I've been using it for two tax seasons now with zero issues.

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Royal_GM_Mark

•8M

OK I have to publicly admit I was completely wrong about Claimyr. After posting that skeptical comment, I was still desperate to talk to the IRS about some business expense questions including those contractor tips, so I tried it anyway. I got a callback from an actual IRS agent in 37 minutes. THIRTY-SEVEN MINUTES. After trying for WEEKS to get through on my own. The agent confirmed that reasonable tips to contractors (like Fiverr artists) are 100% deductible business expenses as long as you have documentation. For anyone else struggling with tax questions - especially about business deductions - being able to talk directly to the IRS is game-changing. They answered all my questions about various business expenses and now I feel completely confident about my deductions for next year.

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Amelia Cartwright

•8M

You're right in this case. Since Fiverr acts as the payment processor and intermediary, they're responsible for issuing the 1099s to the freelancers, not you as the client. This is actually one of the advantages of using platforms like Fiverr - they handle that tax reporting burden. You just need to keep your receipts to document your business expenses, including those tips. The platform is considered the "third-party payment network" for tax purposes, so they handle all the reporting requirements to both the freelancers and the IRS.

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