I agree, the tips should be included in income in order to claim a deduction. Generally this means the tips will be included in Box 1 of the employer provider W-2.
The point of my post, however, is even if the employer did not also report the tips in Box 7, a taxpayer is still entitled to deduct them from taxable income. In other words, a taxpayer should not be unnecessarily burdened just because his or her employer made a reporting error.
This issue arose as I was helping my daughter with her tax return, which were reported incorrectly. I’m a recently retired CPA with 42 years of high level tax planning experience. Early in my career I dealt with a multitude of errors on information returns (W-2s, 1099s, etc). In cases where an information return was incorrect, and the person who prepared it was not willing to correct it, a taxpayer should sill be able to report the properly taxable amounts.
When I encountered this situation in my work life, we prepared reconciliations and attached them to the filed return. I’m accustomed to using professional tax prep software, however, and find TurboTax a bit (actually, a lot) clunky as far as flexibility. Oh well.
