Business owners face many tax traps and what I call “Gotcha” taxes.  Gotcha taxes are obscure laws that even the most conscientious owners could not anticipate or account for but still end up paying for.

I have written in the past of other Gotcha taxes like the late filing penalty tax assessed against partnerships and S corporations with no activity and no bank account.  The penalty can be in the thousands of dollars depending on how many member or shareholders and how late the return.

The newest one I have seen is the tax to restaurant owners on unreported tips.  This is how it works:

A tipped employee reports tips to you each pay period like normal.  You provide that person with a W-2 at year-end showing what they earned and the tips that were reported to you.

The employee goes to his or her tax preparer and finds out they are not showing enough income to claim the maximum earned income credit or they are trying to buy a house and they need to show more income on their tax return.

The tax preparer says,  “Well that is no problem.  We can report more tips to bring your income up.”

Has nothing to do with you.  Right?  Wrong.  The IRS receives a report showing the additional tips reported on the person’s personal income taxes and goes back to you saying you owe the employers share of FICA taxes on the unreported tips.

Unfair?  Absolutely.  That is why I call it a Gotcha tax.