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The answer, of course, is “it depends” — and it’s not quick or easy. Like most things tax-related, the answer is tailored to each client’s circumstances and goals.  Over the past few weeks, our office has spent 20++ hours attending seminars focused entirely on the newly passed One Big Beautiful Bill Act (OBBBA), Public Law 119-21. We’ve been learning the law and discussing how to educate our clients (and ourselves). Working up tax planning and tax minimization ideas for 2024 (where applicable), 2025, and 2026,+++, and we’ll continue to do so as technical corrections and guidance are released. This is giving us a lot to think about/talk about.

Since it’s passing, I have been highlighting a different portion of the law in my weekly blog posts to start us thinking/talking/planning. This isn’t about quick answers or solutions which are like “putting a band-aid on a bullet hole”🩹🚫. These “quick questions” are just jumping-off points for deeper conversations, just as these blog posts are designed to get you thinking… but the real answers will depend on your short-term and long-term financial goals.

💵 This Week’s Focus: “No Tax on Tips”….MAYBE

As part of the OBBBA, there’s a brand-new tax deduction aimed at supporting tipped workers — but it comes with lots of ifs, ands, and limits. This law and rules are effective for 2025 through 2028

• 👩‍🍳 Who’s eligible?
  • Employees or self-employed individuals working in occupations that “customarily and regularly” receive tips, as determined by the IRS on or before 31, 2024
  • Tips must be reported via:
    • Form W-2,
    • Form 1099, or Form 4137 (for direct employee reporting)
    • Taxpayers with Modified Adjusted Gross Income (MAGI) below $150,000 (single) or $300,000 (married filing jointly) — deduction starts phasing out at this income level
  • 💸 What’s deductible?
    • Voluntary cash or charged tips  including those received directly or through tip-sharing
    • Maximum deduction = $25,000/year
    • For self-employed tax[payers: can’t exceed your net income from the tip-earning business (see below as this is not available for those in a specified trade or business SSTB)
    • This is a deduction, not an exclusion — meaning it lowers your taxable income
  • 🚫 Who’s not eligible?
    • Taxpayers with Modified Adjusted Gross Income (MAGI) over $150,000 (single) or $300,000 (married filing jointly) —this deduction starts phasing out at these income levels.
    • Self-employed individuals or employees of businesses classified as a Specified Service Trade or Business (SSTB) under Section 199A
    • Married taxpayers must file jointly to claim the deduction
    • SSN must be included on the return
  • 🧾 Reporting & Compliance:
    • Employers (and others) must file information returns showing cash tips received and the occupation of the recipient
    • The IRS will publish an official list of “tipped occupations” by October 2, 2025
    • Transition relief is expected for 2025 as everyone adjusts to the new rules

📊 A Few Numbers to Note

• The deduction phases out for high earners:
  • For singles earning $150k–$400k, deduction reduces by 10% until phased out
  • For joint filers earning $300k–$550k, deduction reduces by 10% until phased out
• Most taxpayers with very low income won’t benefit, since they already pay $0 federal income tax
• Tax bracket = tax savings:
  • $100 deduction = $10 tax break in the 10% bracket
  • $100 deduction = $37 tax break in the 37% bracket

🍽️ Let’s Put It in Context

Let’s say:

• You’re a server making $40,000 a year, $5,000 of which is tips.
• Your friends earn the same amount — one in retail, one in education — but don’t earn tips.

Under the “No Tax on Tips” rule:

• You could claim up to $5,000 as a deduction (assuming you meet the qualifications).
• That lowers your taxable income, so you may pay less tax than your non-tipped friends, even though you all earned the same total amount. 🍔➡️💵

🤷‍♀️ What We Don’t Know (Yet)

As with any sweeping tax change, we’re still waiting on more details and clarifications. Questions we’re asking:

• Will people shift into tipped occupations to claim the deduction?
• Will employers or consumers adjust behavior (wages, fees, tipping habits)?
• Will the IRS’s list of tipped jobs expand or exclude key groups?
• Will this deduction have a bigger or smaller budget impact than predicted?
• How will audits and compliance be handled for self-reported tips?

We’re expecting technical corrections and more information from the IRS over the coming months, so stay tuned. 🧐

 IRS Resource for More Info: OBBBA Tax Deductions Overview

🧠 Final Thoughts:

Let the Planning Begin…So keep the “quick questions” coming and let’s keep the discussions going until we can be sure we have the best answer or solution — not just for your taxes, but for your goals.  Reporting tips got a whole lot more complicated — for both employees and employers — but it’s also a planning opportunity (yes, really).

👉 Seems like this is another call to action — no wishful thinking, no “I wish I had…”let’s be proactive, not reactive.

Feel free to search our website for some of our complementary resources or get in touch:  Contact us if you have tax concerns, tax minimization questions or want to discuss the next steps for your business success and financial goals.  Use our search box for those posts specific to tax minimization, business planning, business best practices, casualty losses, etc. and see what “pop’s” up.