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Tax season is almost upon us, and if you’re like many service workers, you’ve probably been juggling a number of different jobs and gigs. Feel your blood pressure rising already? Take a breath: To help soften this always-stressful time of year, we’re re-airing an episode with Tiani Wright of Coffee and Tax. Listen along, and she’ll help you figure out how to file correctly—and how to stay on top of your money for the rest of the year, too.
Most coffee workers—not to mention others in the hospitality and service industries—have probably been told a number of conflicting things about taxes over the years. Declare your cash tips. Don’t declare your cash tips. Your tips cannot be taxed. You owe a tax liability at the end of the year. The varying narratives we’re given about how to manage our income can be confusing at best, and financially harmful at worst.
My guest today is Tiani Wright, a tax professional and founder of the group Coffee and Tax, and she wants to help coffee folks get financially literate. As she explains, a lot of that has to do with being open to talking about money in the first place. Tiani encourages people to get to know their pay stubs, to ask questions about their W2s, and to make sure their bosses are deducting the right amount of money from their paychecks.
Being financially literate means being in control of your future, and knowing where your money is going. And Tiani has the advice to help you get there.
Ashley: Can you introduce yourself for everybody?
Tiani: Yes. My name is Tiani of Coffee and Tax and I am the founder of a nonprofit organization—[also called] Coffee and Tax.
We are a nonprofit organization designed to build and support initiatives that shine a light on marginalized individuals, specifically within the specialty coffee industry. We also design and build initiatives to encourage tax literacy among not only baristas, but specifically Black people, marginalized individuals, those that are often uneducated—I don't want to say uneducated, but just unaware of certain things when it comes to financial literacy, specifically tax literacy.
We like to encourage tax literacy as a part of financial literacy and overall wealth-building because it's such an important thing. I think a lot of times people often forget about the tax portion of things when we're talking about building financial wealth and being financially literate. So that's who I am.
I started the organization about a year ago or so, but I had the idea for a couple of years now. We're just getting the ball rolling with really honing in on what our mission is and really, truly trying to see how we could be of help to people all over.
Ashley: That's incredible. I think somebody mentioned to me when I was recording an episode of this podcast with them, they were like, “You love to talk about money,” and I'm like, “Yeah, I do! Because not enough people talk about it!”
I want to talk about kind of the—I don’t know what a word for this is, I'm failing at English, apparently—but where coffee and taxes kind of come together. But I wanted to kind of isolate those both separately just to start. So where does your coffee story start?
Tiani: My coffee story started when I was very young. I’d probably say five years old. My grandfather and I used to go to lunch after church every Sunday. We’d go to this smorgasbord or out to eat and he let me get coffee.
It always made me feel just like such a big girl at such a young age. You know, I felt like such a big girl, and it kind of stuck with me since then. It was something that I always enjoyed. I love the taste of it. I always got a great feeling whenever I drank it.
From there, I remember growing up as a little girl always wanting to own a cafe. I thought that would be such the coolest thing to do—to be around something that I love so much. Even into adulthood, I tried to figure out ways that I could open a cafe or have that under my belt. But life wouldn't really have it that way—not in a traditional sense.
So I always consumed coffee. But I could never really get into the industry of coffee because I started a family and I just got into [what you’d call the] traditional sense of work—like corporate settings and things like that. So that's where my life took that turn.
But I always wanted to maintain that love for coffee and learn more about it or as much about it as I possibly could. It's always been a part of my life, always been a part of who I am, and I am so excited at the thought of diving deeper into the industry and learning as much as I possibly can. Right now, I'm coming from a consumer standpoint, but I hope in the future to really gain more experience and knowledge and skills when it comes to coffee, for sure.
Ashley: Where does your tax story or your financial literacy story start?
Tiani: That's an interesting one. I remember growing up, finances weren't really a thing talked about in our home. I come from a family with a single mom—for the most part, she was a single mom, and her relationship with money was not the best.
It was kind of a situation where if she didn't have the money to pay for something, she just didn't pay it. It wasn't really discussed with me how to think of money, what to think of money. I kind of grew up with the attitude of, “Well, if I can't pay it or if I can't do something, I just can't.”
It wasn't until I started a family of my own—I probably was about 28 years old when I really started to pay attention to finances and money and everything dealing with it. Because, of course, now I'm married, and it's not just me, and I have children to think about, a husband to think about, who was, when I met him, really good with money—and I felt like I couldn't really contribute to the conversation because I didn't know much about it.
And it was intimidating! It was very intimidating to me. I felt like because I didn't know about money, and I'm already probably close to my mid-to-late 20s, it didn't make sense for me to learn it. But as my kids grew older, our kids grew older, I began to see the importance of paying attention to those things.
I wanted to be a more responsible parent. I wanted to teach them all of the things that I didn't know growing up. When I was 16, I remember getting my first paycheck, and my mother took me to have my taxes prepared and I sat there the entire time. I was so disengaged from the process. I wasn't involved at all. I don't know what numbers were ran. I didn't know anything. And I remember that just so vividly. I remember being an adult and not wanting the same thing for my children.
So I think that's where my story stems from—just finally coming to a point in my life where I was like, “You know what? It stops here. I don't want to raise our children not to know or have that same experience that I did. And I know if I had that experience, there are so many other people out there that probably had the same [experience].”
So I took it upon myself about maybe—well, I didn't take it upon myself. I was actually introduced to it by a friend, a former colleague, she introduced me to taxes about maybe five or six years ago. I was in no way a math guru and I wasn't involved in money before then, so it was intimidating, but I did it. I did jump into it because I knew it was something that I needed to do. So that's what's kind of led me here to the point where I am today and now I'm just excited about furthering my education when it comes to taxes and money and financial literacy.
Ashley: I like that you mentioned that you're not necessarily a math guru because I think it could be really easy to think, “Oh, this person is good with numbers,” or “Oh, this person has a mathematical background or an accounting background and that makes them more inclined to be interested in taxes.” But it seems like that's not the case. And that makes it more accessible for people—that this is something that they can understand. This is something that they could dive into and build their own financial literacy without being a math whiz or somebody who's super competent in analytical things.
So I was wondering if we could talk a little bit about wealth-building and that idea of ensuring that you are financially, not necessarily taken care of, but that you understand where money is coming from. Because that's a term I'd never heard—the idea of wealth-building—until I was a lot older. But then that made me think about, “How do I think about my own life, and how do I think about my own finances as an adult?” So I was wondering if you could talk about the idea of wealth-building and why that's important.
Tiani: Yeah, for sure. Well, I know for me—I don't want to say, to be honest with you, I’ll be completely frank, I don't want to say that people don't have a similar story or similar upbringing or experiences as most Black people, but I can only speak from my perspective as a Black woman, as a Black person, as growing up in Black community and things like that. I mean, finances, I know that's a huge issue within our own community, you know?
I know that a lot of parents, because they weren't necessarily taught within our communities how to think about finances, they don't really know how to teach their children. Again, I'm not saying that it's all Black families because I have plenty of friends that grew up the complete opposite. But I do know that it is an issue specifically within the Black community.
I definitely think it's important to realize the older we get, how important it is to really change that narrative—change it specifically for our children. Growing up as a child, to be honest with you and completely frank, Black people that were tax preparers in the community were often looked at as if they were scamming or they weren't being honest or truthful. And that's not necessarily the case.
Okay, so where did that stem from? Does it stem from a place where it's a little bit more deeply rooted as far as like, maybe Black people aren't as financially literate as they should be? I'm not really sure where it stems from, but I just know that the narrative then was insanely inaccurate, and I know it's probably not as much that right now, which is awesome and it's great, but I'm here to further that—that idea that that's not the narrative. That's not the true narrative.
We're just as concerned about finances. We're just as concerned about educating our children. We’re just as concerned about money and wealth-building, and I think more so now than ever people are seeing that across the world. We're fully capable, we’re fully prepared, and we're ready to really contribute to the overall success of our families, our children, our legacies, things like that.
I think it's important to really understand we just got to take a look at it and see that financial literacy, across the board, is important for absolutely everyone. I think when we talk about financial literacy and we talk about wealth-building, we don't really get specific enough because included in financial literacy, included in wealth-building and legacy-building, is taxes—we cannot leave that part out because it's such a intricate part of it all.
I like to say that there is no complete wealth-building or financial success sans knowledge of taxation—we have to know it. It's a part of something we all have to do, so we can't ignore it. We can't leave it behind and just focus on other things, you know?
So I think we’ve really got to take the time out to make sure that it's being included in the conversation. We have so many young people out here these days that are getting jobs early. I think I got my first paycheck when I was probably 15 years old. They had programs in place where we would go on work and we would actually make a check. And so many kids then didn't know exactly what that meant. So I think it's important to make sure that taxes are included in the conversation when we're talking about financial literacy and wealth-building.
Ashley: I think it's interesting that your work specifically looks at folks of marginalized identities because we can look at the confluence of all different factors—of race and class and things like that. But it kind of comes down, not really comes down to, but one of the big components of that is money. Who has access to capital, who has access to funds, how many people have savings so that if they wanted to open a business, they could rely on a savings account or something in their checking account—or just even understand financially what they have, so that they can build a business or they can take the next step in their career? Or they could go back to school or things like that.
When you're starting to have these conversations with people, what are some of the questions that you start to ask, or some of the things that you want to highlight? When people first start thinking about like, “Oh, I have a tax burden,” or “I have to file my taxes this year.” What are some of the things that you're really looking for when you first start talking to people?
Tiani: When I first started talking to people about it, some of the questions that I asked them are what is their history. Not necessarily specifically life-story history, but more so financial history, specifically dealing with taxes.
I know a lot of people that I talked to, a lot of my clients have come from a place where they've dealt with preparers or dealt with CPAs or dealt with accountants in the past, and they haven't had the best of experiences. And it's a really touchy subject, dealing with people's money. So people are very sensitive about their finances, very sensitive about their money, rightfully so, and especially if they've had bad experiences in the past, it could definitely put a sour feeling in the pit of someone's stomach.
You kind of have to go through a process where you're breaking down that barrier first and reassuring them like, “Listen, some things are probably within our control as your preparer, CPA, or tax professional. Some things just aren't. But I'm here to help,” and a lot of people often don't look at it that way.
They see you as not necessarily trying to help, but just trying to get as much as you can from them. And so I take my time. Really, I ask questions. I try to find out their history in the past dealing with taxes and their experiences with different professionals within the industry, but also, probably more importantly, try to get them to understand that I'm here to help. I'm not the most well-known in the industry. I'm still learning myself, but at the end of the day, I want the very best for you.
So I honestly spend most of my time just trying to reassure people—that again goes back to redefining that narrative, right? I'm really trying to let them know not everybody is here to strip things away from you. In fact, I really want you to have the most and the best of everything. So just if you'll allow me to help and to be honest— and people are really receptive to that.
I've had clients in the past come to me and they’re like, “Listen,”—and these are adults in there like, “I just want to know what I'm doing when I'm filing taxes every year, I just want you to explain to me what this line means or what this means.” And it could be a simple as that.
A lot of people are really more inclined to feel comfortable with me because of the fact that I reiterate to them that I just want to help you. I just want you to be in the best position you could be. I don't like the feeling of you thinking that I'm not here to help. It's been, more so with my own personal experience, a matter of me just taking a lot of time, of reassuring and not necessarily just probing them with questions, because a lot of people take that as, “You're asking the same questions that the last couple of people asked, very technical questions about my taxes and my finances,” but they really want to know and are oftentimes not—I'm not going to say in a position to ask, but in the mindset to ask, “Well, how can you help me? I've struggled in the past, and I just need help.”
Ashley: You've touched upon a couple of different ideas—[one being] that we don't talk about finances very openly. It's this subject that we're taught to be very prideful about— to be both prideful and private about. We want to project that we’re successful, that we know what we're doing. But we also don't talk very openly about money. I remember as a barista the first time I got a paycheck, just not understanding at all, not knowing where any of my money was going.
I've been a barista over the last 10 years, and I’ve seen employers treat my money totally differently, seen me even being scheduled for shifts in a way so that you don't have to pay overtime because taxes are different on that. Or not claiming tips in certain ways, which would then go on to bite me in the butt later. Then as a freelancer not really understanding what my tax burden was—so as a barista, I've had to confront taxes in a lot of painful ways.
I was wondering if we could focus on baristas first and look at some of the ways that a barista can look at their paycheck understand where their money is going and what that will look like come April—I mean July for this year, [2020]—but come April, when you do file taxes, what are things that they should be looking out for?
Tiani: For sure. I think one thing that's important for baristas to understand is very important, and not just for baristas but we're talking about them specifically, just understand and ensure that their paychecks are fair and accurate.
I think there was a case not too long ago that I'm actually in the process of studying— there were a couple of baristas and they filed a lawsuit against Starbucks because of the mishandling of how the tips were being “collected” from their checks. So it's important to pay attention to paychecks.
I know that we oftentimes rely on our employers to do what's fair—to do what's right. But there's a lot that we shouldn't leave in their hands, only because of things like human error, there's all kinds of things. Errors are the responsibility, ultimately, of the employees or the barista, so you’ve gotta be sure that the information on your paystub matches the information on your W2. That's also really, really important.
A barista should also spot-check their paychecks regularly. I know it sounds like more of a hassle than not, but if you could keep, or if baristas could keep, accurate records of how many hours they work to ensure that they're getting paid for all of the time that they put in, that's super helpful. Super, super helpful. Because clerical errors can happen and paystubs can vary from company to company. So it's important to check with the employer to understand that you understand the terms on your paycheck or the abbreviations on your paycheck. That you understand what they mean, what's being taken out.
Ask questions. A lot of times, people are very intimidated and don't wanna ask questions because they feel like they're coming off as uneducated or not knowledgeable in that area. But it's important. You want to understand what those things mean that are coming out of your checks. So when it comes to tax time, you know even beforehand what you can expect come tax time each year.
Going back to keeping records. I think that when it comes to record-keeping, I think that's probably one of the biggest things I wanna stress because you can't necessarily put that burden upon your employer. Baristas are going to have to keep good records of what it is that they are getting in tips and how many hours they're working per week. Even if it's in a little notebook, so that if there's anything that does come up, at least you have record of what has taken place. Then you can fairly fight [discrepancies] because you've kept your record. I think that’s important.
Most importantly for baristas throughout the year is just make sure they have a good understanding of what's being taken out, what their paycheck looks like, and why those things are listed the way that they are—and ask questions. Ask questions if they don't know.
Ashley: That's a good point about record-keeping. And I think you even saying that [it’s enough] just putting it down in a notebook is super helpful.
I think it's easy to be like, “Oh, my records don't mean anything because I wrote them down.” It's like, “No, that is evidence,” and it's something that I advise baristas on if they want to file a complaint with the EEOC—the Equal Opportunity Employment Office. I think that that's right? [Note—it’s not. It’s the Equal Employment Opportunity Commission.]
That is a totally valid way to keep track of what's happening around you—to take notes and to make sure that you have your own records so that you can show that, “Hey, but what my employer is saying is actually not accurate based on these notes that I took.”
What are some common things that baristas should look for on their paychecks? I know that it's going to vary state-to-state or depending on how many hours they work. But what are some expected things that are going to be taken out of a paycheck?
Tiani: Okay, so when it comes to your paycheck, you're going to see things like your gross pay, which pretty much is the total amount of money that you earned that period.
With regard to taxes, baristas are going to see things like withholdings—so that could be state taxes, health insurance premiums, Social Security, Medicare…
More specifically, some of the things that can often be seen on a barista’s paychecks is federal taxes. So the federal government gets a percentage of any income earned by the barista. When you hear income tax, that's what it's referring to. Your employer uses several pieces of information to get that, and that includes how much you make on average and how many dependents you say you have on your W4. That's how they estimate a barista’s federal tax liability.
The estimated amount is divided by the number of pay periods you have each year, and then that amount is deducted from the paycheck. That's definitely one thing—the money deducted for federal withholding taxes is sent by the barista’s employer to the federal government. That's typically how it's done. At the end of the year, if the amount withheld is more than the actual federal tax liability, that's when a barista can expect a refund. If it's less than that, then the barista will typically owe [money].
So when people say, “Yeah, I got a refund,” versus somebody that says, “I actually owe”—that's where that comes into play.
There's also state taxes. Depending on what state you live in, you may be required to pay state income taxes, you may not. But just like federal taxes, money for state taxes is withheld from every paycheck, and it shows up as a deduction on a separate line on the paycheck.
Baristas can also expect for FICA to be taken out, which stands for Federal Insurance Contributions Act. It's actually the law that requires every person who works to contribute to Social Security and Medicare funds. So if you see FICA on your paycheck stub, it's pretty much just a deduction for those two federal programs. Some paycheck stubs break out the deductions and show how you're paying for both Medicare and Social Security. For instance, every worker contributes 6.2% of their gross income directly to that fund, and every employer chips in an additional 6.2%, so that's typically how that works there.
In cases where a barista is self-employed or is an independent contractor, what usually happens is you have to pay both the worker and the employer portion, so the paycheck is effectively reduced by 12.4% because you're contributing to both sides. You're contributing on both the employer side and the employee side of things.
Then there's other deductions and benefits. So then that's when your childcare comes into play. That's when your retirement contributions come into play, depending on where you work, PTO, insurance. If you have any flexible spending accounts or health savings accounts, you'll see all of that taken out of your paycheck, typically, in addition to any retirement savings plans that you may have.
And then you have the net pay. The net pay is pretty much the amount of money that you get to take home or the amount that you receive after everything is deducted. So that's what typical paycheck deductions and taxes include—are those things right there.
Ashley: There are two things I want to talk about because one of them is kind of important and in the zeitgeist right now, and then the other is just important to baristas in general.
I want to talk a little bit about unemployment and what that looks like right now, especially because I think there's a lot of confusion for people who think that people who are on unemployment are taking away from the system—but you pay unemployment taxes or your employer plays unemployment taxes. So I was wondering if you can talk a little bit about that.
Tiani: Now, when you say that as far as how my personal feelings are about unemployment or is it just as far as…
Ashley: How they're paid as taxes, how we all pay into the system of unemployment.
Tiani: Right. So we do all pay into the system of unemployment. Unemployment, for me personally, is a necessary thing, in any event, or in situations where something happens and you just cannot work—say you've worked for years and years and years, whatever the profession, you pay into these things and you pay into them without question or complaint. And then if unfortunately something bad happens, or it doesn't even have to be bad, there's a period of time where you can't work and you have to be out of work for an extended period of time, right?
Ashley: Which is super right now, because a lot of baristas are out of work.
Tiani: For sure! That unemployment comes in handy, and it's something that I think should be taken advantage of. I know that a lot of people don't necessarily—I'm not gonna say I know, but I think there's a lot of controversy when it comes to unemployment, and a lot of people might feel as if they shouldn't take advantage of that resource. But I don't think there should be any shame there.
I think it's important, especially like I said before, because we all do pay into it religiously. And I think it should be utilized when needed, and so many people need it, and I think that there shouldn't be … I know that there are gonna be, just like with everything that we do, there are gonna be situations where it's being taken advantage of. But I honestly don't believe that’s the case with the majority of the situations and again, like you said right now, we're seeing so many people that are unemployed because of reasons beyond their control, you know?
And so why is it OK now for people who have just come to their senses and realized like, “Okay, yeah, it's needed. We need it, let's do it,” but before, a lot of people are actually looked down upon because they have to utilize that type that resource—its's for that specific purpose and reason.
I think there are systems in place to ensure, as best as we possibly can, that it's not being misused or abused. So I think we should let it be handled in that way, and if we need it or if there's a situation where somebody needs it, I think that they should definitely look into how they can get it because it's helpful. Not everybody that takes unemployment is doing it with the mindset of, “This is it. This is the end-all, be-all. I'm gonna be on unemployment for however long…”
No! I think most people that utilize that resource go into it with an idea like, “All right, this is temporary. Just until I can get a job or get employment.” I think it's a good benefit. I think it's a good resource, and I think more people should be forthcoming about their utilization of it, because I think the more people utilize it and learn about it, the more they can educate other people about it and how to utilize that resource in a responsible way.
Ashley: Right. And it seems there's confusion about the role of unemployment—we pay into the system. This is not necessarily the government just giving money to people willy-nilly. When you have that pay stub, part of that money goes to unemployment taxes. So the idea is that you've been putting money away for the potential that you could be unemployed or something like a pandemic—which more people should stay home for if they can—is meant to protect that.
Tiani: Yeah, I think a lot of people, where it gets a little sticky, is that we pay into it and we think about it in terms of, “Oh, yes, it’s there for us if we need it.” But when it comes to other people, I think we then like to pick and choose, and we like to dictate how it's being used.
I think we forget sometimes that it's a resource meant to be used by anyone that is unemployed or who needs the assistance or the help. So I think we just gotta be a little bit more mindful when we're doing it. That OK, it's there for us, for me if I need it. But it's also there in case it's needed by someone else. We really can't control that aspect of things as far as how it’s being utilized.
We have a certain amount of control over things, but I think we need to understand that, listen, at the end of the day, we don't have total control over that, just like a lot of the things that we pay into. We don't really have a lot of control as to what it is that money or those funds are being utilized for. I mean, of course, we have our complaints about it, but I mean, does that stop anything? We still have to pay into it.
Ashley: Right. I think we've been clear on this, but just in case things needs clarification, I don't think you and I are glorifying or condemning anything specifically. But the idea is that the information that you're presenting is helping people make more informed decisions and understand where their finances are going. That's not to say anything is good or bad.
I do want to talk about tips. As we start to wrap this conversation up, [I want to talk about tips] because this is probably where there's the most ambiguity about what to do with them. I've worked at jobs where I was told not to declare my tips. I was told to declare my tips. You get some of your tips in cash, so how do you work around those?
So I was wondering if you could talk a little bit about how tips are looked at from a tax perspective—not necessarily provide advice because everybody is different and everybody's needs are different. But just how to think about some of the ramifications of what does it mean when you don't declare tips or how can that affect you, either positively or negatively?
Tiani: For sure, definitely. I think probably the most important thing for any barista to take away from the conversation when it comes to tips is look at it like: You'd rather report tips. You'd rather have that information reported and as accurate as possible than not, specifically when it comes to the IRS.
I'd rather be as close to perfect as I can possibly be when it comes to reporting numbers to the IRS than severely under or just wrong about any of it. Because again, so many people, so many baristas know or have experienced, it could definitely come back to bite you. It's not just the situation where it's like, “Oh, I messed up, I'll do better next time.” This can really cause some financial detriment in a lot of cases.
So I think the most important things when it comes to tips, in my personal opinion, is to just definitely—in addition to just paying attention to your checks and your stubs and your W2s and W4s—report any numbers that you have, and and cross-check your employer again to see what numbers they're reporting also. If it's a situation where you have to self-report, that record-keeping is gonna come into play and is going to be extremely handy. If you have questions or you aren't really sure—report, report your tips.
I know that they say that some amounts aren't necessarily reportable or aren't necessary and they don't need to be reported. It should probably be good practice just to report those numbers anyway. We all know it’s the responsibility of the barista to pay income tax and Social Security and Medicare taxes on the tips that they receive. So again, it's important to ensure that employees are reporting those numbers accurately.
I know some employers may have advised that cash tips are under the table and non-reportable. However, it probably is best to just [follow] good practices and ensure that these numbers are being reported accurately. You want to avoid false amounts being reported, you wanna avoid incorrect reporting of any of these numbers. Because again, if they're insanely inaccurate, it leaves the barista vulnerable and subject to audit and subject to having to pay out thousands of dollars potentially in the future.
I'd like to just tell people that if you have a question, just report. Not all numbers are going to be taxable, but just report it anyway. In a situation where you have tip-sharing arrangements—I know a lot of restaurants and bars do that—if your employer doesn't report your tips as income on a tax form, then it's your responsibility as the barista to report those numbers.
It should be reiterated that nontraditional items such as [lottery] tickets or other items of value are also considered to be tips, and they should be reported as well because a lot of people have questions about like, “Well, what if I get a lottery ticket and I have lottery winnings and things like that. Do I have to report that?” Well, yeah, you report it. I'm just gonna err on the side of caution to say, yeah, you should report it.
If your employer takes on the responsibility of reporting your tips to the IRS on your behalf, then they say you don't need to report the value of any non-cash tips. Again, you don't have to—everybody's situation is different, and I know people are gonna do what they feel is best, which is completely okay. But I think it’s a good practice to report it.
Again, keep good records—and they have a form. Actually, it's a form, I think it’s IRS Form 4078, and it's actually a form that baristas can use to report daily records of tips. I didn't even know that that form existed before, but it could be a helpful tool to utilize to keep track of what tips you do bring in. Just make sure you write the date and the amount of tips that were directly paid—any tips from credit cards and debit cards should be on there. The value of any non-cash tips…
And it's also important to keep a record of tips for as long as you keep your other important tax documents. So if you keep your tax documents for a minimum of a year or two years or three years, which is what they recommend that you keep them for, then you should probably also keep a record of your tips for that long as well. Just in case you need to go back and bring it back on the table at some point.
Baristas should also be sure they file W2 on a tax return as well as any overages that they might have because those might also be subject to Social Security and Medicare taxes.
When it comes to tips, I think the biggest thing is just accurate record-keeping. Just knowing that if you are self-employed, if you are an independent contractor, you're going to have to report those amounts yourself, regardless of if your employer is going to be reporting those numbers on your behalf or if you're gonna be reporting those numbers—important record-keeping or accurate record-keeping is going to be very, very helpful to you. It’s probably best for baristas to go ahead and to report all numbers when it comes to tips.
Ashley: Is there anything else that you think baristas should know or other coffee professionals should know as we close out the conversation?
Tiani: For sure. There is a couple of things that I think the baristas should know, especially when it comes to filing taxes every year.
So the first thing: I think it's important to prepare ahead of time. So don’t just think about it when tax season arrives and it's time to actually file—be thinking about [your taxes] throughout the year.
A couple of things that baristas can do in order to actually prepare to file is remember that tips are taxable, including cash tips. Report all tips to employers, especially if they total $20 or more—and again, it goes back to that tips have to be reported if they're $20 or more—and it’s just a good practice. You should probably report it regardless.
It's also important for baristas to know what counts as a tip. So what counts as a tip are things like service charges—some of those service charges could be things like bottle service or room service or delivery charges and gratuity—things like this are also important to know, because again, these are considered as tips.
Get familiar with the math. Tipped workers usually make money via both an hourly set wage and tips. Many people get tips at the end of each shift. However, the taxes on those tips don't typically surface until the tips are reported to the employer. Then the employer withholds the appropriate payroll tax from the employee’s paycheck. It is possible that the hourly wages on the barista’s paycheck may not cover the taxes that they owe on the tips that they've already taken home. And if that happens, they should be able to make the tax payment through their employer, have their employer deduct it from their next paycheck. So get familiar with the math if possible—it's gonna be very helpful.
At the end of the year is when they’ll receive a W2 reflecting their wages and the tips that were reported. A copy of that will go to the IRS and a copy will come to you. That's what you use to file your taxes each year. And again, if tips aren't reported or are reported inaccurately, it can be costly to the barista. So it's probably best practice to try and get a good grasp on it throughout the year instead of waiting around tax time. Because then if there is something that needs to be caught, the chances are you're going to catch it throughout the year and get it corrected before tax time comes and then you don’t have to on the back end, deal with the whole process. And as we know, you can't get in touch with anybody from the IRS right now.
So I know a lot of people are struggling and having issues. They can't get their answers covered, their questions answered. It's just hard, but it's because of the pandemic. It's just difficult. So it's probably gonna be a little bit of a headache throughout the year. But I'm pretty sure we'll save people a huge headache [with this information] at the end of the year come tax time for sure.
So that's just preparing to file. And then when filing, you want to do things like pay attention to filing deadlines—those are also really important because if you don't adhere to certain deadlines, of course you have a penalty. Baristas wanna pay attention to the ways that they can maximize their refund. So depending on the employer, did they use all of their flexible spending account dollars? Things like that. If they didn't … it's just important to know how baristas can maximize their deductions and really make sure that they take every precaution in doing so. They’ve gotta be sure that they claim all available deductions, including any charitable deductions. So that's also a really important tip when filing.
Another important tip is to consider filing status. So your relationship status on December 31st [of last year] will determine your filing status for the entire year. And that's the filing status on things like, are you filing as head of household? Are you filing married? Are you filing joint taxes? If you have questions about that and you're not really sure how to file or what would be the best way to file, definitely ask before you commit to any tax preparer for the definition of each. Make sure you understand which applies to you. That's important.
Be sure to have all of your reported income, make sure your bank information is correct. And I think probably another really important tip is choose someone that you trust. I'm big on referrals, and it takes me a while to choose somebody to do anything—it takes me a while to choose a doctor, it takes me a while to choose someone to come and mow my lawn, like it takes me a minute to really choose. But I just want to make sure that whoever I choose to do the things in my life, that I feel comfortable, completely comfortable with.
I know a lot of times people feel really crunched. Maybe they are waiting late to file or they don't know where to turn. They don't know who to turn to, and they just choose people. But it is important to ask those questions. Even if you're not 100% familiar with taxation yourself, you want to make sure that you feel comfortable that the person you're choosing to prepare your taxes is comfortable and that they're willing to divulge that information to you—that they're not just running your numbers and saying, “All right, pay me.”
At the end of the day, you want to be sure that if you have questions that they’re patient and they’re explaining it to you—those are helpful things that I know personally a lot of my clients are grateful for. It's the fact that I take the time to explain it, regardless of if they utilize my services or not. And it goes back to just making sure that everyone is as educated as they possibly can be about the process, because it's a scary process. You think about being audited by the IRS and you think about losing thousands of dollars and you want to make sure that you get your maximum refund, and so it's a lot to consider, and you want to make sure that whoever is going through that process with you is somebody that you feel completely comfortable with.
So I think those are the main tips that I would suggest when it comes to filing taxes, specifically for baristas each year.
Ashley: Awesome. Thank you so much for taking the time to talk to me. I really appreciate it.
Tiani: I appreciate you having me come on. I really thank you for that. I had fun.
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