Question

Rachel is a restaurant hostess with tip income. Which of the following statements would help her to report her tip income accurately?

a. Any tips Rachel receives are excluded from gross income and are not subject to federal income tax.
b. If Rachel does not report her tips to her employer, they are not taxable.
c. Rachel should use Form 4070-A, Employee's Daily Record of Tips, to keep a daily record of her tip income.
d. Tips under $20 a month are not taxable.

Answer 1

C

Step-by-step explanation:

4070 is used to keep track of tips

Answer 2

Rachel should accurately keep track of her tip income using Form 4070-A, as tips are taxable income that needs to be reported to the Internal Revenue Service. The correct option is c. Rachel should use Form 4070-A, Employee's Daily Record of Tips, to keep a daily record of her tip income.

Step-by-step explanation:

One of the pieces of advice that would help Rachel report her tip income accurately is that she should use Form 4070-A, Employee's Daily Record of Tips, to keep a daily record of her tip income.

This is a factual and useful method for employees like Rachel, who work in a tipping industry, to accurately track and report their earnings.

The other statements are incorrect: tip income is not excluded from gross income (a), it is taxable even if not reported to an employer (b), and tips under $20 a month are indeed taxable as they are part of the employee's income (d).

Taxation and reporting of tip income are critical as they contribute to the reported adjusted gross income on a tax return, which eventually determines the amount of taxes owed to the government.

Misreporting or failing to report tips can lead to penalties and issues with the Internal Revenue Service (IRS). Therefore, accurate record-keeping using Form 4070-A is essential for compliance with federal tax regulations. The correct option is c. Rachel should use Form 4070-A, Employee's Daily Record of Tips, to keep a daily record of her tip income.