Earning a living as bartender can be a lucrative endeavor if your customers leave good tips and your employer provides you with a competitive salary. The Internal Revenue Service requires that you report both types of income on your tax return. However, if you don't report your tips to your employer so it can include it on your W-2, you must figure out how much you earn in gratuities before you do your taxes.
Choose the appropriate tax return form. U.S. citizens and residents can choose to file their tax returns on the 1040 long-form, a 1040A or the 1040EZ. Filing on Form 1040EZ is only available if your taxable income is less than $100,000, but choosing this form precludes you from itemizing deductions, filing as head of household and claiming dependent exemptions or adjustment to income deductions. The same taxable income requirements apply to the 1040A, and although you can use any filing status and can claim dependent exemptions, the only adjustment to income deduction you can make are for individual retirement arrangement (IRA) contributions and student loan interest.
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Calculate annual tip income. The IRS requires that you report your tip income to your employer on a monthly basis. However, failing to file the monthly report doesn't allow you to exclude the tips you earn from your gross income. Instead, you must calculate your annual tips by referencing the tip journal that the IRS requires you to maintain throughout the year.
Calculate your total wages. All federal tax return forms include a line for reporting your total wages. Your total wages equal the amount your employers report to you on a W-2 form. And if your W-2s don't reflect all of your tip income, you must combine the wages from each W-2 with your tip income to arrive at the total wages you must report on your tax return.
Claim personal exemption and standard or itemized deductions. You can always claim one personal exemption on your tax return that will reduce your taxable income by the applicable exemption amount for the year. However, you must also determine whether claiming the standard deduction or itemizing your expenses will save you more in tax. If you choose to itemize, you should include the expenses you incur that relate to your bartending position, such as the cost of licenses your employer or the government requires you to obtain and the cost of enrolling in courses that enhance your bartending skills.
Compute your tax liability. Once you finish reporting all income and deductions, you must calculate your tax bill for the year using the IRS tax tables in the instructions to your tax form. After computing the tax, reference your W-2 forms to obtain the amount of your tax withholding. Report all tax withholding in the "payments" section of your return, and subtract it from the tax bill to arrive at your outstanding tax bill or the refund you can expect to receive.
Things You'll Need
IRS Form 1040, 1040A or 1040EZ
Records of daily tip income