Having lived in Nevada for the majority of my adulthood, I have long been acquainted with tipping. It has gotten to the point where I feel guilty for not putting a dollar in the tip jar at Starbucks for a $2 coffee or at my local sandwich shop. While living in Las Vegas I heard stories of people making thousands of dollars a night as a cocktail waitress or doorman at a club and valet drivers earning six figures a year.
Since these tips were usually in the form of cash, I presumed that a lot of income wasn’t being reported to the IRS. I knew that the casino industry had agreements in place with the IRS for years where a fixed amount of tips per hour was reported on their W2s. I’m sure more tip income was earned, but since cash tips are so hard to trace the IRS needed some piece of the pie without being overly burdened.
Recently, my presumption on tip earners not claiming all their tips has come true. According to a Las Vegas Review Journal article, a club co owner and some of his employees recently got busted for not claiming all their tips as income. This particular club owner didn’t pay $141,306 in taxes on $403,732 of tip income in just two years! Three hosts and a doorman plead also plead guilty, although the article doesn’t say what they earned. These employees didn’t have any sort of elaborate scheme; they just didn’t report hundreds of thousands of dollars to the IRS from their tips!
I don’t know this guy personally, but I’m sure he wasn’t living a modest lifestyle and driving around town in a Hyundai. The IRS can easily construct a taxpayer’s income. If someone is driving around in a Porsche, living in a mansion with gardeners and pool guys, and wearing fancy jewelry, the IRS can figure out how much all that costs and calculate how much income would be needed to facilitate this lifestyle. Not being truthful to the IRS is an easy way to land in jail. Just ask Al Capone who got busted for tax evasion!