Here is what we are doing for our trade business, where per the IRS we can deduct tips. For what it's worth!!!
- On the 1065, line 1, show your total gross receipts. Line 8 should show Total Income (include your tips in both of these).
line 21, show the tip deduction. You may need to attach a sheet that states "Tips -- $$$$$"
- Then on line 23, your typical ordinary business income will show the deduction you took in line 21.
On the 1065, Schedule K:
- Line 1) Bring over the total from Line 23 above.
- Line 13) include tip income as deduction here.
- Line 14a) You cannot deduct the tips from here because you still have to report tips as part of SE earnings.
On the personal K-1:
Line 1) This should include the total for that partner, without the tips included here.
Line 13) Other Deductions. You'll have to pick the proper letter code -- show the deduction here along with any other deductions.
Your Lines 14A and 20 should not change (SE Income and QBI if you have any).
