Question

Which one of the following statements is MOST CORRECT?

a. Tips received by a person working in the hospitality industry are only included in the taxpayer's assessable income if the total amount received exceeds $100.
b. Tips received by a person working in the hospitality industry constitute exempt income.
c. Tips received by a person working in the hospitality industry are assessable income.
d. Tips received by a person working in the hospitality industry do not constitute assessable income because they will constitute a fringe benefit.
e. Tips received by a person working in the hospitality industry constitute non-assessable, non-exempt income.

Answer 1

Tips received by a person working in the hospitality industry are considered assessable income and must be reported for tax purposes. Taxable income will be derived by subtracting permitted deductions and exemptions from the adjusted gross income.

Step-by-step explanation:

The most correct statement regarding tips in the hospitality industry is that they are considered assessable income. According to taxation principles, the Internal Revenue Service (IRS) generally considers all forms of income to be assessable unless they are specifically exempt under tax laws. Tips, being a form of compensation for services provided, are included in this category and must be reported by the employee on their tax return. However, the total taxable income would be calculated by deducting any allowed deductions and exemptions from the adjusted gross income. Understanding how tips affect your taxable income is critical in managing your taxes and complying with federal tax regulations.