October 21, 2025 • 27 mins
UPDATED NOTES!
Laws have been updates since this was recorded. Important updates are time stamped:
7:36 Start discussion about $25k tip income deduction.
10:52 Reminder that laws are still being written.
11:35 Reminder that this is a Federal law, States may or may not do something, FICA still applies. Must file joint return if single. NEW – must have income to take deduction
15:10 Shift to owner’s discussion.
15:58 Could be eligible for $50k if both have tip income. NEW - We now have law that says it will be limited to $25k per return.
16:56 NEW - 1993 FICA tip tax credit started for restaurants. Originally it was indicated as early 80s.
20:34 FICA Tip Tax Credit is the amount paid and will get back what paid. CLARIFY – If not paying tax, may be carried back 1 year and/or carried forward a max of 20 years. Treated like other general credits so there are many different factors based on the personal taxpayers’ situation. This is a FICA tax credit – not a state deal.
Tax talk that actually puts money back in your pocket starts here. We sat down with April McDaniel of Kopsa Otte to decode the new rules on tips for the beauty industry and map out simple steps that protect your income, benefits, and long-term security. From why 100% of tips must be reported to how the new incentives work, we connect the dots so employees and owners can act with confidence.
First, we break down the $25,000 employee tip deduction: who qualifies, how to document tips correctly on a W-2, what “modified adjusted income” means for phaseouts, and why FICA still applies. We also cover special cases like self-employed artists keeping separate tip records, married filing status pitfalls, federal versus state differences, and the 2025–2028 window that makes this a timely priority. The message is clear: clean records now lead to smoother filings and bigger benefits later.
Then we shift to the owner’s playbook. April explains how the long-standing FICA tip credit, claimed on Form 8846, now applies to salons and spas. We detail the payroll and reporting steps that unlock the credit, when minimum wage rules limit eligibility, and how the credit flows through for S corps and partnerships. You’ll hear practical policies that eliminate off-book cash and app tips, ways to leverage salon software for accurate reporting, and a simple compliance framework that stops leaving money on the table.
This conversation champions a mindset shift: tips are not coffee money, they are real income that should fund goals, build credit, and secure benefits. If you’re ready to level up your business, align your team, and claim what the law now offers, this is your roadmap. Subscribe, share with your team, and leave a review to help more beauty pros grow smarter and stronger.
Find out more about April and Kopsa Otte at h
To learn more about how Strategies can help you create more profit, fun, and growth potential for you, your business, and your team, schedule a free 60-minute strategy session:
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Christy (00:06):
Welcome to the Beauty Business Strategies Podcast.
I'm Christy Hardy and I amcompletely honored to be here
today with April McDaniel withCopsa Odi to talk about
something that is a reallyimportant topic and concern and
excitement, all of the above foranyone in our beauty industry.
(00:27):
And that is the new tax creditsand new tax laws around tips.
So, April, thank you forjoining me today.
I am always honored to be inany room with you.
April (00:40):
Even if it's a Zoom room.
Honor for me to be here.
Christy (00:44):
Love it.
April is, for those of you whodon't know our partnerships or
our friendships, April is a trueconfidant for strategies.
She is our go-to for anythingthat is related to understanding
taxes at a better way.
She and her team at Copsa ODJust have always been so
(01:05):
impactful and knowledgeable, andwe appreciate you so much.
So always glad to have you.
April (01:10):
Yeah, we love strategies.
We love thank you.
Thank you.
You know, whether you'retouching clients with your hands
because you're actually atechnician or you're in the
business of being a businesscoach or an advisor.
And I think that's why Copes atOD and Strategies gets together
(01:32):
and does such great thingstogether.
It's because we we both trulybelieve in serving people.
So that's for sure.
Christy (01:40):
Yeah.
Yeah.
Absolutely.
Absolutely.
My pleasure.
All right.
So let's dive in.
So, you know, I am now workingin my role at Strategies.
I'm not in the day-to-day withthe salons quite as much.
Used to run a salon for many,many years and had the
challenges of tip reporting andteaching my team the importance
(02:03):
of making sure that all tips arerecorded.
So before we even dive into thetax credit, I know this is like
a tender area for some people,but I think it's important that
we um take one second to talkabout do stylists,
aestheticians, anyone in thisservice industry, beauty service
(02:24):
industry, do they need toreport their tips, even if
they're cash versus credit card?
April (02:30):
100%.
Christy, this is a black andwhite issue.
Even if people want to act likeit's not, it is very black and
white, very clear in the taxcode.
100% of tips that someonereceives is considered income.
If you're, you know, if you'rea solo artist and you're
self-employed, then it'sself-employment income.
(02:52):
If you're an employee, it goeson your W-2.
It is part of your income.
And the reality of it is itdiminishes the value of this
industry when we don't do itright.
Because what happens is, youknow, we have um powers that be
that get to decide what schoolsget student loans.
(03:15):
And they don't think peoplemake any money in this industry.
And so there's this reviewprocess right now, happening
right now, that may restrict um,you know, cosmetology schools
and massage therapy schoolsgetting student loan aid because
they think, why give them anymoney to do this?
They don't make any money.
And the reality is you can makea six, seven-figure income
(03:37):
doing this, but it's becausewe're not being honest.
And we have to be honest aboutit.
And then the other thing, theother incentivized piece of it,
I think, is, you know, you go todraw on social security or
Medicaid when you're um when youbecome disabled, um, God
forbid, or you um, you know,just get to that age where you
(03:59):
want to retire and get socialsecurity and Medicaid.
If you haven't put it in, youdon't get it.
And so you're reducing whatyou're putting in.
You're also limiting theability to get home loans and
car loans and all of thosethings.
So, you know, I can, you know,Christy, where I sit on this
issue.
I sit right there with you.
Yeah.
And I can preach about it allday long.
(04:21):
But the reality is it's theright thing to do, it's the law.
Um, and um, I'm a W-2 earner.
I pay tax on every dollar thatI make.
And that means that I am fullyengaged in supporting everything
that our taxes support.
And I don't think it's fairthat someone else doesn't do
(04:41):
that.
So, you know, get on the busand let's all work together.
Um have a little party andeverybody do it right.
The other thing that it does isit creates a uniform system
between you and the hair placedown the street or the massage
place down the street.
If everybody does it right,then we don't run into this
(05:02):
issue where we have employeesthat are skipping places and
moving around because they'retold they don't have to pay
taxes on their tips.
Yeah.
So it takes away that it'sreally not a competitive thing
because it's the law, but we dohave salon owners that are using
it in a competitive way.
And it's not, it's not really,it's it you shouldn't be doing
(05:25):
that.
So thanks for letting me get onmy soapbox for a minute.
I'm happy now.
Christy (05:29):
I knew what your answer was going to be before I even
asked the question because Ifeel that way too.
I think it's it's reallyimportant.
And and honestly, uh, you know,quick little stories.
When I was in my salon and spa,I had one person who got into a
car accident and had to claimdisability.
And I remember her saying tome, she was she was very honest
(05:51):
with me.
And she used to write in someof her cash tips, but um, but
she said, Christy, at the end ofthe day, I didn't write in all
my tips.
Can I can I do it now?
And I said, no, you can't.
Like, no, you you can't getcredit for this now.
Um and then when it came toeven, you know, COVID hitting
(06:12):
and having to lay off 28 peoplein one day, right?
And had to teach my team whatit meant to be on unemployment
and all of these things.
And the same question came up.
And I said, I'm sorry that Ithe preaching that we've done of
really making sure you'recompliant and and sharing this
(06:32):
information with you literallyquarterly.
We shared the information, um,didn't resonate until the
emergency hit.
And I think at that point,everyone's light bulb really,
really went off where they werelike, you know what, if
something traumatic does happenagain, we need to be prepared.
So and I hate to use the fearfactor, but it's, you know, it
is like you said, it's fairness,it's the law.
(06:53):
And and it's something that wereally need to be compliant
with.
And I think this tax credit isthe perfect time to continue
that conversation of making surepeople are compliant because
they can't get these, peoplecan't get these tax credits if
they're not doing thingsproperly.
Right.
Right.
So something that I, you know,for anyone who hasn't, um, you
(07:16):
should definitely watch April'spodcast.
I you probably can get themright on your website or right
on through your your webinars.
Your webinars, not yourpodcast.
Um, because you were veryeducational in sharing what the
difference between the twoportions of this law are.
Can we talk first about theindividuals?
Like, what are the serviceproviders?
(07:37):
What is this tax credit?
Um, when do they see thebenefit of this?
Like, let's talk about the theindividual first.
April (07:45):
The employee first.
Christy (07:46):
Yeah.
April (07:47):
Yeah.
So the employee first, um, theyare eligible for a $25,000
deduction on their tax return uhfor tips that they have
received.
And those tips have to beproperly recorded on the W-2.
Um so in the correct box on theW-2 to show this tip income.
(08:10):
And then they it's a directreduction to their income on the
tax return.
Now, there are a couple thingsum to think about.
First, you mentioned it, it'snot an immediate benefit, it's
something that has to happenwhen they do their tax return.
So, you know, I think there hasbeen some misunderstanding, or
(08:31):
possibly just in the differentrenditions of the bill, it
changed over time on how it wasgoing to be done.
But the $25,000 tip deductionwill be something that as an
employee, you're going to workwith your tax preparer on.
If you're using TurboTax or ifyou're using some other um
(08:51):
system to file your tax returnand you're doing it on your own,
you're going to need to knowhow to answer those questions
when you're going through thattax return.
And there is matching documentsthat the IRS will look for.
Like I said, where it's at onthe W-2.
If you happen to beself-employed, you also qualify
for this 25,000 tip deduction asa self-employed worker in the
(09:15):
tipping industry.
You also qualify, but you doneed to keep um good records as
far as what was tipped and whatwas, you know, for the service,
what you got for the service.
And that's not something thatyou've had to do before because
if you're self-employed, all ofthat income really comes into
one bucket.
And it's all tax the same asfar as self-employment income.
(09:36):
So it is a little bit differentif you're self-employed to keep
track of it.
But for our W-2 earners, it'sum it's really quite
straightforward.
Uh, you're going to give yourW-2 to your tax person, like you
always have, um, whatever yourtip amount is up to $25,000.
You'll get a deduction forthat.
Now, if you're a high wageearner, let's say you're you
(09:57):
make $150,000, um, it does startto phase out for you.
So it does get reduced.
It's $100 for every thousanddollars that you're over the
threshold.
So let's say you make $160,000and you're $10,000 over, it's
going to be reduced by, youknow, um $100 for every
thousand.
That's a thousand bucks thatit's reused.
Christy (10:19):
And that's the, so just for calculation's sake, just
for clarity for myself.
So when you're saying theearning, that is the if you're a
on a W you're a W-2 employee,whether it's commission or
hourly, plus the tips initially.
So if it was $100,000 in inincome plus $50,000 income that
(10:39):
is tax uh tips, that's your$150,000 versus and it could be
some other things, you know.
April (10:46):
Um, the IRS is still issuing final guidance on these
things.
You know, the bill gets passed,and then IRS has to make
changes to forms and all ofthat, and the law has to be
written.
So um it's what it says ismodified adjusted income.
So there's a chance that thatalso includes interest income.
It might include foreignincome, things like that.
(11:07):
And so that's why it's gonna beimportant that you know how to
answer the questions if you'redoing your own return or if
you're going to a CPA.
More importantly, maybe thisyear is a year to do that, is to
actually That's what I was justgonna say.
I think I would decide that Ineeded a CPA to this year.
They can help you, you know, dothat and make sure that you get
it right.
Um, so those are really the twothe two biggest things.
(11:30):
And then, of course, toremember that this is a federal
deduction.
And so, you know, it's not it'snot assumed that the state is
also going to give you this$25,000 deduction.
It's possible that they won't.
Each state has to decide whatthey're going to do.
And keep in mind you still oweFIGA tax on it.
So the Social Security andMedicare tax still applies to
(11:53):
this amount.
Um, two other things.
If you're married and youdecide to file separately,
you're not qualified.
So you if you're married, youhave to file joint.
Okay.
Or you don't qualify for this.
You also don't qualify for theno tax on overtime.
If you've heard about that,that's not as much of a deal in
(12:13):
this industry.
But just to bring that up, youhave to, if you're married, you
have to file jointly.
Otherwise, you don't qualifyfor those two things.
And then yeah, so definitelysomething to be thinking about.
And then the other thing is toothis $25,000 deduction is
applicable for calendar year 25through 2028.
(12:34):
So the seduction is somethingthat's right now set to be
temporary.
So we have to think a littlebit about that.
Um I it's interesting, it'skind of like I don't know, you
were you own your own business.
And so when you give peoplesomething and you try to take it
away, it's like you're cuttingtheir fingers off, right?
So the same thing happens ingovernment.
(12:55):
Once they give something likethis, it's really hard for them
to take it away.
So I'm sure there's going to beall kinds of ongoing debate
about it when it comes about in2028, but it is important that
people know that this one um inparticular does is set to
expire.
So okay.
Christy (13:11):
All right.
We're like tests in the waters,it sounds like.
April (13:14):
Yeah, and I think, you know, I think that they're doing
this to try to increasecompliance.
You know, they want people tobe reporting it.
They don't want the story likewhat you're sharing about
somebody not being able to getenough a disability.
They don't want that story.
They don't, you know, I thinkthat not only did it open
owners' eyes, it openedgovernment's eyes about, you
know, people not having enoughin unemployment when the time
(13:38):
came when they needed it forsomething.
Christy (13:40):
So yes, yes, so true, so true.
Yeah, that's a good perspectiveto have.
It's it's it's to covereverybody.
It's you know, it and it's nota bad thing to have to be
compliant and to put your tipsin.
Like it's just I don't know.
Usually I could get on thatcircuit.
April (13:55):
Yes, exactly.
Just like I'm proud of where Istarted versus where I am, when
I look at the amount of moneythat I am able to make, you
should be proud of it.
And the the interesting thingis is that statistically, when
we have cash, we spend itquicker and we don't include it
in our overall budget when weconsider the things that we want
(14:15):
to do.
And so if we put that in ouroverall budget and we think
about our goals and our dreamsand what we want for the rest of
our lives, then it becomes moreof a reality.
So if your dream is to havethat perfect pair of pumps that
are six or seven hundreddollars, well, if you include
the tips in your budget, you'regonna get there quicker than if
(14:38):
you pretend like the tips arejust coffee money, you know?
Absolutely.
Or if you want to go on a on aEuropean vacation, or if your
goal is to retire early or youknow, be able to take care of
your mom or your dad or asibling or something, guys.
You've got to use good moneyskills and your tips are part of
your budget.
Christy (14:58):
So that is a good point.
Absolutely.
Absolutely.
All right.
So let's let's flip the switcha little bit.
Let's switch to the owner head.
Um, thank you for clarifyingfor the individuals.
Oh, you know what?
As let's make it a littlebridge.
If you are an owner who's alsoa service provider, do you get
to experience the individual andyou're gonna get what okay,
(15:21):
cool.
Yeah, that's great.
April (15:22):
Now, our owners typically are making a little bit more
money, so they might phase out.
True, right?
Christy (15:28):
True.
April (15:28):
Um, if you're own an owner of a business, you have
other things going on.
You might have real estateincome, you might have you're
maybe you're married, and so youhave a spouse that's making
some money.
You know, typically you, ifyou're an owner, you're a
hustler, so you are you'reworking on building your empire,
right?
So there's a chance that youcould phase out, but you are
(15:51):
eligible for it.
You're eligible for the $25,000deduction.
And let me just say this too: if you're married and your (15:54):
undefined
spouse also receives TIP income,you could be eligible for $50,
oh, great.
Christy (16:02):
Okay.
That's great.
That's good to know.
Yeah, yeah, that's awesome.
All right, so let's pivot alittle bit.
Tell me about the owner side ofit.
We're still collecting thesame, we're we're putting it,
processing the tips throughpayroll.
We're making sure that thetaxes are paid, both the
employee taxes and theemployer's portion of the taxes.
(16:25):
So that side stays the sameright now.
But then what happens?
What's this tax credit?
April (16:32):
So the tax credit is something that is done on a form
on the tax return of thebusiness at the end of the year.
So uh not that the formmatters, but it's an 88, 46.
It's been around foreverbecause the restaurant industry
has been getting this credit fora really, really long time.
I think, gosh, I have the datein my head.
(16:53):
I want to say it was early 80s,maybe.
It's been a long time.
Wow.
Um, and what what's reallyexciting about this, uh, first
of all, we should thank the PBA.
We should thank all thosepeople that advocated to get
this credit.
I think it's amazing that ithappened.
And it just shows the abilitythat we have as people to lobby
together to get what we need andwhat we want, right?
(17:15):
So we should remember that whenwe're thinking about other
things that are really importantin this country, right?
So when we think about the FICAtips tax credit, um, first of
all, it's been around for a longtime.
What happened is that it wasexpanded to the beauty industry.
Um we have a newsletter thatwent out, I think yesterday or
today, that actually listed theother specific industries that
(17:35):
it expanded into.
But definitely anyone that's uma follower of strategies or of
COPESA OD as far as the salonand beauty industry is going to
be eligible for this.
Um, it requires accurate tiprecords.
So again, we have to go back tothe compliance and think about
how that's getting reported.
Um and there are some formsthat the IRS has available if
(17:56):
someone's not reporting tipsright now that you can use um to
help your employees do it.
Um, but you also can use thesoftwares that you have.
And all of you, I'm sure, thatare listening have great
softwares.
Um, all of them have theability to report those cash
tips in there.
If someone's getting Venmotips, they need to be reporting
them to you.
If someone's getting tickets toa Broadway show and that's
(18:16):
their tip, the dollar amount ofthat needs to be reported.
That's a tip, okay?
Um, if you're trading servicesfor the tip, that's a tip.
It still counts, okay?
So um first of all, first ofall, the accurate tip reporting
has to be there through payroll,then on the 941s and on the W3
at the end of the year.
The information then on the 45beat credit is very
(18:39):
straightforward.
It's the FICA tax, and that'sthe credit.
So, you know, the only thingthat could be a little bit
different, and we don't see thismuch in the salons that we work
with, because most everyonethat we work with, they're even
their hourly folks are makingover minimum wage.
But if you happen to havesomebody that's not making
(18:59):
minimum wage and you're tryingto use that tip amount to get to
the minimum wage, the FICA onthat does not count towards this
credit.
Okay.
So we don't see that veryrarely ever in the beauty
industry in our space here atCope City.
But I have had a few people askme in open forums about that.
(19:20):
So I know that it's happeningplaces.
Um, but we do see it in therestaurant industry.
A lot of times your servers orwhoever don't make minimum wage,
and so they have um the tipshave to help them get there.
The owner doesn't get the FICAtip tax credit if in fact
they're trying to get to minimumwage with those tips.
Okay.
(19:41):
So then what will happen is umif you're a pass-through entity,
so let's say you're apartnership or an S corporation,
um, then that's gonna passthrough that credit actually
passes through to your personalincome tax and it reduces your
per your tax on your personalside, is how that will work.
Yeah.
So just like you today pay taxfor the business, you're paying
(20:03):
that typically personallybecause it passes through.
Now we do have things like passthrough entity tax.
We don't have to get throughall that, get to that, but we do
have some of that or PTE tax,um, where we do get to pay it
sometimes at the business level.
That's kind of new since um thetax cuts and jobs act in 18.
But never mind that we're stillgonna pay that tax, we're still
(20:24):
gonna get that credit at thepersonal level when it comes to
this credit.
And again, there's no, there'sno max.
Okay.
Christy (20:31):
That's great.
Okay, that's good to know.
April (20:33):
Whatever you paid, you can get back.
Um, but there are, you know,obviously some of those other
things that I talked about.
So yeah.
Christy (20:42):
And that's so this is just federal level also.
So if there's some certainstate taxes, though no, no
credits on that, it that orstate by state, I guess I should
say, right?
April (20:51):
Yep, state by state.
Christy (20:53):
Okay.
If you had to give like just alittle piece of advice to an
owner or service provider, teammember this year specifically,
it's a brand new kind of thoughtprocess on this.
What would your advice be?
April (21:10):
Uh I think this is the year to become compliant if
you've not been compliant,because there's not you don't
have there's not there's no riskto you of losing anything.
Yeah, true.
So it's not about people, youknow, if I say I'd get them now
and I wasn't getting thembefore, yeah, what does that
(21:30):
mean?
Well, the reality is that ifthe IRS didn't have a low number
of staff, you'd already be verylow-hanging fruit and you'd be
getting audited now.
Christy (21:40):
So that was gonna be my next question because I see it
all over different forums wherethey're like, Well, I've been in
business for a long time.
We haven't been doing this.
What is this going to red flagus?
Right.
April (21:52):
Um my first comment to that is shame on you.
Christy (21:55):
Right.
April (21:56):
Shame on you.
I see it all the time too,Christy, in these public forums
on Facebook, people admittingthat they are committing tax
fraud.
Right?
I mean, come on.
Now, it's one thing if youdon't know, and I still think
that there is a need foreducation in this space.
And I will do it forever.
(22:17):
I absolutely love doing it.
And I don't blame someone fornot knowing, but at the point
where you're making a decisionto not do it and you know it's
not right, that's an ethicalissue.
So yeah, yes, and I know youknow this, but for the audience,
you know, COPSA OD believes init so much that we will not work
(22:37):
with people that are not filingthat are not paying tax on
their tips.
So it is a question that weask.
Now, somebody could lie to me,but I'm gonna figure it out
because I can look at their W3s,I can look at their tax return,
I can figure it out.
But um, it is you have to, youwould have to lie to me in order
for me to decide that I wasgonna work with you for you not
to be reporting tips.
(22:57):
Otherwise, it's a requirementfor us.
Christy (23:00):
So I think that's great.
I mean, I just think that itlevels up the integrity of this
industry too.
We do get, you know, it's likethat old school, this is not a
career, it's not a uh, you'renot owned, you don't really own
a company.
Yes, you do.
You own a company, you own abusiness, you have team members,
(23:21):
you have employees.
Like let's level up thisincredible industry that has
just so much continued growthpotential and so so many smart
people.
Why are we diminishing what wedo and the services we provide
because it used to be that way?
No way, let's level up.
(23:42):
So I'm glad you guys do stufflike that because and it is, you
know, like running a business,and I I, you know, full
transparency, I tried so hard tomake sure everyone was
compliant, but you literallycan't walk in and go into their
purse and count how much cashthey put in there, right?
But I mean, it was we foundevery which way we could to try
(24:05):
to ensure that our teams werecompliant in the way that they
were um sharing their their cashtips and and whatnot.
And it, and you know what?
It's it's a job in itself todo, but it's the right thing to
do.
So as an owner or as a leaderin your business, continuing
that conversation shouldn't bescary.
(24:26):
It shouldn't be, yes, it can befrustrating, but it shouldn't
be something because out offrustration you don't do.
Um, and we're leaving money onthe table if we don't, if we're
not complying, especially now.
Maybe this will be that lightbulb moment for everyone that
we've actually left the money onthe table for them.
April (24:43):
For sure.
And I I think that you know,people are um people are willing
to change if you give them thewhy.
You know, you gotta give themthe why and and then you know,
hopefully they will do it.
But you know, the other thingis is that at the end of the
day, you could just tell youcould just make a policy that
(25:05):
says no cash tips, no venmotips.
Your salon can go no cash, novenmo, everything has to run
through.
If you're using a product thatallows the client to pay the
credit card the transaction fee,which there are some products
out there that do that now.
Um, I'm not gonna say whetherthat's right or wrong or legal
(25:28):
or not, because that's not myposition, but there are some
really great software productsout there that do that.
As an owner, you're not outanything.
Yeah.
So you could definitely go to ano cash, no ven mm, PayPal, all
those things.
Right.
Policy, right?
And and then it's just like ifyou have a policy that they have
(25:50):
to wear closed toe shoes.
If they show up with closed toeshoes, they get written up,
right?
If they don't report their tipsor they start using cat getting
cash, and you are going to knowit, they get written up.
It's the same process.
We just have to be really goodbusiness people.
Christy (26:06):
Yes, yes, yeah.
And like you said, likesoftware, even if somebody is
paying with cash, you can putthe tip onto that software.
Like we used to do that.
We had that ability too.
So yeah.
Yeah, there is a way to do it.
There is a way to do it forsure.
This has been very educational.
Thank you.
I really appreciate it.
I always appreciate everyconversation I have with you,
(26:28):
but I love learning new thingsand just seeing how we can
continue to level up thisindustry.
And for business owners, likethe business owner hat or
service provider, because maybethey're just thinking about
becoming an independent serviceprovider and so owning their own
business.
But to be able to educateowners and future owners on the
(26:49):
right way to do business is sovery important.
So we appreciate COPSOD's umcontinued efforts alongside us.
We will constantly be you knowflaying those flags of let's
make healthy businesses becausehealthy businesses grow healthy
careers, grow healthy futures.
So together we're gonna keepdoing this, April.
Yes, yes, thank you so much,Betsy.
(27:10):
You are so welcome.
If anyone who is watching wouldlike to hear more from April or
talk to April, I'm going tolink her email address and the
Copes of Odie website in ourpodcast.
Um, we would love for you tohave those conversations with
her or contact us at Strategies.
We can absolutely get you intouch as well.
Um, and thank you, April.
(27:32):
Cheers to Healthy BeautyBusinesses and continued success
for all of them.
Of course.
I wish I had a glass of wine.
I know, right?
Cheers to my my water and my mystemless wine glass.
Cheers.
April (27:44):
Yeah.
Christy (27:46):
All right, April.
Thank you so much.
Welcome to the Beauty Business Strategies Podcast.
I'm Christy Hardy and I amcompletely honored to be here
today with April McDaniel withCopsa Odi to talk about
something that is a reallyimportant topic and concern and
excitement, all of the above foranyone in our beauty industry.
(00:27):
And that is the new tax creditsand new tax laws around tips.
So, April, thank you forjoining me today.
I am always honored to be inany room with you.
April (00:40):
Even if it's a Zoom room.
Honor for me to be here.
Christy (00:44):
Love it.
April is, for those of you whodon't know our partnerships or
our friendships, April is a trueconfidant for strategies.
She is our go-to for anythingthat is related to understanding
taxes at a better way.
She and her team at Copsa ODJust have always been so
(01:05):
impactful and knowledgeable, andwe appreciate you so much.
So always glad to have you.
April (01:10):
Yeah, we love strategies.
We love thank you.
Thank you.
You know, whether you'retouching clients with your hands
because you're actually atechnician or you're in the
business of being a businesscoach or an advisor.
And I think that's why Copes atOD and Strategies gets together
(01:32):
and does such great thingstogether.
It's because we we both trulybelieve in serving people.
So that's for sure.
Christy (01:40):
Yeah.
Yeah.
Absolutely.
Absolutely.
My pleasure.
All right.
So let's dive in.
So, you know, I am now workingin my role at Strategies.
I'm not in the day-to-day withthe salons quite as much.
Used to run a salon for many,many years and had the
challenges of tip reporting andteaching my team the importance
(02:03):
of making sure that all tips arerecorded.
So before we even dive into thetax credit, I know this is like
a tender area for some people,but I think it's important that
we um take one second to talkabout do stylists,
aestheticians, anyone in thisservice industry, beauty service
(02:24):
industry, do they need toreport their tips, even if
they're cash versus credit card?
April (02:30):
100%.
Christy, this is a black andwhite issue.
Even if people want to act likeit's not, it is very black and
white, very clear in the taxcode.
100% of tips that someonereceives is considered income.
If you're, you know, if you'rea solo artist and you're
self-employed, then it'sself-employment income.
(02:52):
If you're an employee, it goeson your W-2.
It is part of your income.
And the reality of it is itdiminishes the value of this
industry when we don't do itright.
Because what happens is, youknow, we have um powers that be
that get to decide what schoolsget student loans.
(03:15):
And they don't think peoplemake any money in this industry.
And so there's this reviewprocess right now, happening
right now, that may restrict um,you know, cosmetology schools
and massage therapy schoolsgetting student loan aid because
they think, why give them anymoney to do this?
They don't make any money.
And the reality is you can makea six, seven-figure income
(03:37):
doing this, but it's becausewe're not being honest.
And we have to be honest aboutit.
And then the other thing, theother incentivized piece of it,
I think, is, you know, you go todraw on social security or
Medicaid when you're um when youbecome disabled, um, God
forbid, or you um, you know,just get to that age where you
(03:59):
want to retire and get socialsecurity and Medicaid.
If you haven't put it in, youdon't get it.
And so you're reducing whatyou're putting in.
You're also limiting theability to get home loans and
car loans and all of thosethings.
So, you know, I can, you know,Christy, where I sit on this
issue.
I sit right there with you.
Yeah.
And I can preach about it allday long.
(04:21):
But the reality is it's theright thing to do, it's the law.
Um, and um, I'm a W-2 earner.
I pay tax on every dollar thatI make.
And that means that I am fullyengaged in supporting everything
that our taxes support.
And I don't think it's fairthat someone else doesn't do
(04:41):
that.
So, you know, get on the busand let's all work together.
Um have a little party andeverybody do it right.
The other thing that it does isit creates a uniform system
between you and the hair placedown the street or the massage
place down the street.
If everybody does it right,then we don't run into this
(05:02):
issue where we have employeesthat are skipping places and
moving around because they'retold they don't have to pay
taxes on their tips.
Yeah.
So it takes away that it'sreally not a competitive thing
because it's the law, but we dohave salon owners that are using
it in a competitive way.
And it's not, it's not really,it's it you shouldn't be doing
(05:25):
that.
So thanks for letting me get onmy soapbox for a minute.
I'm happy now.
Christy (05:29):
I knew what your answer was going to be before I even
asked the question because Ifeel that way too.
I think it's it's reallyimportant.
And and honestly, uh, you know,quick little stories.
When I was in my salon and spa,I had one person who got into a
car accident and had to claimdisability.
And I remember her saying tome, she was she was very honest
(05:51):
with me.
And she used to write in someof her cash tips, but um, but
she said, Christy, at the end ofthe day, I didn't write in all
my tips.
Can I can I do it now?
And I said, no, you can't.
Like, no, you you can't getcredit for this now.
Um and then when it came toeven, you know, COVID hitting
(06:12):
and having to lay off 28 peoplein one day, right?
And had to teach my team whatit meant to be on unemployment
and all of these things.
And the same question came up.
And I said, I'm sorry that Ithe preaching that we've done of
really making sure you'recompliant and and sharing this
(06:32):
information with you literallyquarterly.
We shared the information, um,didn't resonate until the
emergency hit.
And I think at that point,everyone's light bulb really,
really went off where they werelike, you know what, if
something traumatic does happenagain, we need to be prepared.
So and I hate to use the fearfactor, but it's, you know, it
is like you said, it's fairness,it's the law.
(06:53):
And and it's something that wereally need to be compliant
with.
And I think this tax credit isthe perfect time to continue
that conversation of making surepeople are compliant because
they can't get these, peoplecan't get these tax credits if
they're not doing thingsproperly.
Right.
Right.
So something that I, you know,for anyone who hasn't, um, you
(07:16):
should definitely watch April'spodcast.
I you probably can get themright on your website or right
on through your your webinars.
Your webinars, not yourpodcast.
Um, because you were veryeducational in sharing what the
difference between the twoportions of this law are.
Can we talk first about theindividuals?
Like, what are the serviceproviders?
(07:37):
What is this tax credit?
Um, when do they see thebenefit of this?
Like, let's talk about the theindividual first.
April (07:45):
The employee first.
Christy (07:46):
Yeah.
April (07:47):
Yeah.
So the employee first, um, theyare eligible for a $25,000
deduction on their tax return uhfor tips that they have
received.
And those tips have to beproperly recorded on the W-2.
Um so in the correct box on theW-2 to show this tip income.
(08:10):
And then they it's a directreduction to their income on the
tax return.
Now, there are a couple thingsum to think about.
First, you mentioned it, it'snot an immediate benefit, it's
something that has to happenwhen they do their tax return.
So, you know, I think there hasbeen some misunderstanding, or
(08:31):
possibly just in the differentrenditions of the bill, it
changed over time on how it wasgoing to be done.
But the $25,000 tip deductionwill be something that as an
employee, you're going to workwith your tax preparer on.
If you're using TurboTax or ifyou're using some other um
(08:51):
system to file your tax returnand you're doing it on your own,
you're going to need to knowhow to answer those questions
when you're going through thattax return.
And there is matching documentsthat the IRS will look for.
Like I said, where it's at onthe W-2.
If you happen to beself-employed, you also qualify
for this 25,000 tip deduction asa self-employed worker in the
(09:15):
tipping industry.
You also qualify, but you doneed to keep um good records as
far as what was tipped and whatwas, you know, for the service,
what you got for the service.
And that's not something thatyou've had to do before because
if you're self-employed, all ofthat income really comes into
one bucket.
And it's all tax the same asfar as self-employment income.
(09:36):
So it is a little bit differentif you're self-employed to keep
track of it.
But for our W-2 earners, it'sum it's really quite
straightforward.
Uh, you're going to give yourW-2 to your tax person, like you
always have, um, whatever yourtip amount is up to $25,000.
You'll get a deduction forthat.
Now, if you're a high wageearner, let's say you're you
(09:57):
make $150,000, um, it does startto phase out for you.
So it does get reduced.
It's $100 for every thousanddollars that you're over the
threshold.
So let's say you make $160,000and you're $10,000 over, it's
going to be reduced by, youknow, um $100 for every
thousand.
That's a thousand bucks thatit's reused.
Christy (10:19):
And that's the, so just for calculation's sake, just
for clarity for myself.
So when you're saying theearning, that is the if you're a
on a W you're a W-2 employee,whether it's commission or
hourly, plus the tips initially.
So if it was $100,000 in inincome plus $50,000 income that
(10:39):
is tax uh tips, that's your$150,000 versus and it could be
some other things, you know.
April (10:46):
Um, the IRS is still issuing final guidance on these
things.
You know, the bill gets passed,and then IRS has to make
changes to forms and all ofthat, and the law has to be
written.
So um it's what it says ismodified adjusted income.
So there's a chance that thatalso includes interest income.
It might include foreignincome, things like that.
(11:07):
And so that's why it's gonna beimportant that you know how to
answer the questions if you'redoing your own return or if
you're going to a CPA.
More importantly, maybe thisyear is a year to do that, is to
actually That's what I was justgonna say.
I think I would decide that Ineeded a CPA to this year.
They can help you, you know, dothat and make sure that you get
it right.
Um, so those are really the twothe two biggest things.
(11:30):
And then, of course, toremember that this is a federal
deduction.
And so, you know, it's not it'snot assumed that the state is
also going to give you this$25,000 deduction.
It's possible that they won't.
Each state has to decide whatthey're going to do.
And keep in mind you still oweFIGA tax on it.
So the Social Security andMedicare tax still applies to
(11:53):
this amount.
Um, two other things.
If you're married and youdecide to file separately,
you're not qualified.
So you if you're married, youhave to file joint.
Okay.
Or you don't qualify for this.
You also don't qualify for theno tax on overtime.
If you've heard about that,that's not as much of a deal in
(12:13):
this industry.
But just to bring that up, youhave to, if you're married, you
have to file jointly.
Otherwise, you don't qualifyfor those two things.
And then yeah, so definitelysomething to be thinking about.
And then the other thing is toothis $25,000 deduction is
applicable for calendar year 25through 2028.
(12:34):
So the seduction is somethingthat's right now set to be
temporary.
So we have to think a littlebit about that.
Um I it's interesting, it'skind of like I don't know, you
were you own your own business.
And so when you give peoplesomething and you try to take it
away, it's like you're cuttingtheir fingers off, right?
So the same thing happens ingovernment.
(12:55):
Once they give something likethis, it's really hard for them
to take it away.
So I'm sure there's going to beall kinds of ongoing debate
about it when it comes about in2028, but it is important that
people know that this one um inparticular does is set to
expire.
So okay.
Christy (13:11):
All right.
We're like tests in the waters,it sounds like.
April (13:14):
Yeah, and I think, you know, I think that they're doing
this to try to increasecompliance.
You know, they want people tobe reporting it.
They don't want the story likewhat you're sharing about
somebody not being able to getenough a disability.
They don't want that story.
They don't, you know, I thinkthat not only did it open
owners' eyes, it openedgovernment's eyes about, you
know, people not having enoughin unemployment when the time
(13:38):
came when they needed it forsomething.
Christy (13:40):
So yes, yes, so true, so true.
Yeah, that's a good perspectiveto have.
It's it's it's to covereverybody.
It's you know, it and it's nota bad thing to have to be
compliant and to put your tipsin.
Like it's just I don't know.
Usually I could get on thatcircuit.
April (13:55):
Yes, exactly.
Just like I'm proud of where Istarted versus where I am, when
I look at the amount of moneythat I am able to make, you
should be proud of it.
And the the interesting thingis is that statistically, when
we have cash, we spend itquicker and we don't include it
in our overall budget when weconsider the things that we want
(14:15):
to do.
And so if we put that in ouroverall budget and we think
about our goals and our dreamsand what we want for the rest of
our lives, then it becomes moreof a reality.
So if your dream is to havethat perfect pair of pumps that
are six or seven hundreddollars, well, if you include
the tips in your budget, you'regonna get there quicker than if
(14:38):
you pretend like the tips arejust coffee money, you know?
Absolutely.
Or if you want to go on a on aEuropean vacation, or if your
goal is to retire early or youknow, be able to take care of
your mom or your dad or asibling or something, guys.
You've got to use good moneyskills and your tips are part of
your budget.
Christy (14:58):
So that is a good point.
Absolutely.
Absolutely.
All right.
So let's let's flip the switcha little bit.
Let's switch to the owner head.
Um, thank you for clarifyingfor the individuals.
Oh, you know what?
As let's make it a littlebridge.
If you are an owner who's alsoa service provider, do you get
to experience the individual andyou're gonna get what okay,
(15:21):
cool.
Yeah, that's great.
April (15:22):
Now, our owners typically are making a little bit more
money, so they might phase out.
True, right?
Christy (15:28):
True.
April (15:28):
Um, if you're own an owner of a business, you have
other things going on.
You might have real estateincome, you might have you're
maybe you're married, and so youhave a spouse that's making
some money.
You know, typically you, ifyou're an owner, you're a
hustler, so you are you'reworking on building your empire,
right?
So there's a chance that youcould phase out, but you are
(15:51):
eligible for it.
You're eligible for the $25,000deduction.
And let me just say this too: if you're married and your (15:54):
undefined
spouse also receives TIP income,you could be eligible for $50,
oh, great.
Christy (16:02):
Okay.
That's great.
That's good to know.
Yeah, yeah, that's awesome.
All right, so let's pivot alittle bit.
Tell me about the owner side ofit.
We're still collecting thesame, we're we're putting it,
processing the tips throughpayroll.
We're making sure that thetaxes are paid, both the
employee taxes and theemployer's portion of the taxes.
(16:25):
So that side stays the sameright now.
But then what happens?
What's this tax credit?
April (16:32):
So the tax credit is something that is done on a form
on the tax return of thebusiness at the end of the year.
So uh not that the formmatters, but it's an 88, 46.
It's been around foreverbecause the restaurant industry
has been getting this credit fora really, really long time.
I think, gosh, I have the datein my head.
(16:53):
I want to say it was early 80s,maybe.
It's been a long time.
Wow.
Um, and what what's reallyexciting about this, uh, first
of all, we should thank the PBA.
We should thank all thosepeople that advocated to get
this credit.
I think it's amazing that ithappened.
And it just shows the abilitythat we have as people to lobby
together to get what we need andwhat we want, right?
(17:15):
So we should remember that whenwe're thinking about other
things that are really importantin this country, right?
So when we think about the FICAtips tax credit, um, first of
all, it's been around for a longtime.
What happened is that it wasexpanded to the beauty industry.
Um we have a newsletter thatwent out, I think yesterday or
today, that actually listed theother specific industries that
(17:35):
it expanded into.
But definitely anyone that's uma follower of strategies or of
COPESA OD as far as the salonand beauty industry is going to
be eligible for this.
Um, it requires accurate tiprecords.
So again, we have to go back tothe compliance and think about
how that's getting reported.
Um and there are some formsthat the IRS has available if
(17:56):
someone's not reporting tipsright now that you can use um to
help your employees do it.
Um, but you also can use thesoftwares that you have.
And all of you, I'm sure, thatare listening have great
softwares.
Um, all of them have theability to report those cash
tips in there.
If someone's getting Venmotips, they need to be reporting
them to you.
If someone's getting tickets toa Broadway show and that's
(18:16):
their tip, the dollar amount ofthat needs to be reported.
That's a tip, okay?
Um, if you're trading servicesfor the tip, that's a tip.
It still counts, okay?
So um first of all, first ofall, the accurate tip reporting
has to be there through payroll,then on the 941s and on the W3
at the end of the year.
The information then on the 45beat credit is very
(18:39):
straightforward.
It's the FICA tax, and that'sthe credit.
So, you know, the only thingthat could be a little bit
different, and we don't see thismuch in the salons that we work
with, because most everyonethat we work with, they're even
their hourly folks are makingover minimum wage.
But if you happen to havesomebody that's not making
(18:59):
minimum wage and you're tryingto use that tip amount to get to
the minimum wage, the FICA onthat does not count towards this
credit.
Okay.
So we don't see that veryrarely ever in the beauty
industry in our space here atCope City.
But I have had a few people askme in open forums about that.
(19:20):
So I know that it's happeningplaces.
Um, but we do see it in therestaurant industry.
A lot of times your servers orwhoever don't make minimum wage,
and so they have um the tipshave to help them get there.
The owner doesn't get the FICAtip tax credit if in fact
they're trying to get to minimumwage with those tips.
Okay.
(19:41):
So then what will happen is umif you're a pass-through entity,
so let's say you're apartnership or an S corporation,
um, then that's gonna passthrough that credit actually
passes through to your personalincome tax and it reduces your
per your tax on your personalside, is how that will work.
Yeah.
So just like you today pay taxfor the business, you're paying
(20:03):
that typically personallybecause it passes through.
Now we do have things like passthrough entity tax.
We don't have to get throughall that, get to that, but we do
have some of that or PTE tax,um, where we do get to pay it
sometimes at the business level.
That's kind of new since um thetax cuts and jobs act in 18.
But never mind that we're stillgonna pay that tax, we're still
(20:24):
gonna get that credit at thepersonal level when it comes to
this credit.
And again, there's no, there'sno max.
Okay.
Christy (20:31):
That's great.
Okay, that's good to know.
April (20:33):
Whatever you paid, you can get back.
Um, but there are, you know,obviously some of those other
things that I talked about.
So yeah.
Christy (20:42):
And that's so this is just federal level also.
So if there's some certainstate taxes, though no, no
credits on that, it that orstate by state, I guess I should
say, right?
April (20:51):
Yep, state by state.
Christy (20:53):
Okay.
If you had to give like just alittle piece of advice to an
owner or service provider, teammember this year specifically,
it's a brand new kind of thoughtprocess on this.
What would your advice be?
April (21:10):
Uh I think this is the year to become compliant if
you've not been compliant,because there's not you don't
have there's not there's no riskto you of losing anything.
Yeah, true.
So it's not about people, youknow, if I say I'd get them now
and I wasn't getting thembefore, yeah, what does that
(21:30):
mean?
Well, the reality is that ifthe IRS didn't have a low number
of staff, you'd already be verylow-hanging fruit and you'd be
getting audited now.
Christy (21:40):
So that was gonna be my next question because I see it
all over different forums wherethey're like, Well, I've been in
business for a long time.
We haven't been doing this.
What is this going to red flagus?
Right.
April (21:52):
Um my first comment to that is shame on you.
Christy (21:55):
Right.
April (21:56):
Shame on you.
I see it all the time too,Christy, in these public forums
on Facebook, people admittingthat they are committing tax
fraud.
Right?
I mean, come on.
Now, it's one thing if youdon't know, and I still think
that there is a need foreducation in this space.
And I will do it forever.
(22:17):
I absolutely love doing it.
And I don't blame someone fornot knowing, but at the point
where you're making a decisionto not do it and you know it's
not right, that's an ethicalissue.
So yeah, yes, and I know youknow this, but for the audience,
you know, COPSA OD believes init so much that we will not work
(22:37):
with people that are not filingthat are not paying tax on
their tips.
So it is a question that weask.
Now, somebody could lie to me,but I'm gonna figure it out
because I can look at their W3s,I can look at their tax return,
I can figure it out.
But um, it is you have to, youwould have to lie to me in order
for me to decide that I wasgonna work with you for you not
to be reporting tips.
(22:57):
Otherwise, it's a requirementfor us.
Christy (23:00):
So I think that's great.
I mean, I just think that itlevels up the integrity of this
industry too.
We do get, you know, it's likethat old school, this is not a
career, it's not a uh, you'renot owned, you don't really own
a company.
Yes, you do.
You own a company, you own abusiness, you have team members,
(23:21):
you have employees.
Like let's level up thisincredible industry that has
just so much continued growthpotential and so so many smart
people.
Why are we diminishing what wedo and the services we provide
because it used to be that way?
No way, let's level up.
(23:42):
So I'm glad you guys do stufflike that because and it is, you
know, like running a business,and I I, you know, full
transparency, I tried so hard tomake sure everyone was
compliant, but you literallycan't walk in and go into their
purse and count how much cashthey put in there, right?
But I mean, it was we foundevery which way we could to try
(24:05):
to ensure that our teams werecompliant in the way that they
were um sharing their their cashtips and and whatnot.
And it, and you know what?
It's it's a job in itself todo, but it's the right thing to
do.
So as an owner or as a leaderin your business, continuing
that conversation shouldn't bescary.
(24:26):
It shouldn't be, yes, it can befrustrating, but it shouldn't
be something because out offrustration you don't do.
Um, and we're leaving money onthe table if we don't, if we're
not complying, especially now.
Maybe this will be that lightbulb moment for everyone that
we've actually left the money onthe table for them.
April (24:43):
For sure.
And I I think that you know,people are um people are willing
to change if you give them thewhy.
You know, you gotta give themthe why and and then you know,
hopefully they will do it.
But you know, the other thingis is that at the end of the
day, you could just tell youcould just make a policy that
(25:05):
says no cash tips, no venmotips.
Your salon can go no cash, novenmo, everything has to run
through.
If you're using a product thatallows the client to pay the
credit card the transaction fee,which there are some products
out there that do that now.
Um, I'm not gonna say whetherthat's right or wrong or legal
(25:28):
or not, because that's not myposition, but there are some
really great software productsout there that do that.
As an owner, you're not outanything.
Yeah.
So you could definitely go to ano cash, no ven mm, PayPal, all
those things.
Right.
Policy, right?
And and then it's just like ifyou have a policy that they have
(25:50):
to wear closed toe shoes.
If they show up with closed toeshoes, they get written up,
right?
If they don't report their tipsor they start using cat getting
cash, and you are going to knowit, they get written up.
It's the same process.
We just have to be really goodbusiness people.
Christy (26:06):
Yes, yes, yeah.
And like you said, likesoftware, even if somebody is
paying with cash, you can putthe tip onto that software.
Like we used to do that.
We had that ability too.
So yeah.
Yeah, there is a way to do it.
There is a way to do it forsure.
This has been very educational.
Thank you.
I really appreciate it.
I always appreciate everyconversation I have with you,
(26:28):
but I love learning new thingsand just seeing how we can
continue to level up thisindustry.
And for business owners, likethe business owner hat or
service provider, because maybethey're just thinking about
becoming an independent serviceprovider and so owning their own
business.
But to be able to educateowners and future owners on the
(26:49):
right way to do business is sovery important.
So we appreciate COPSOD's umcontinued efforts alongside us.
We will constantly be you knowflaying those flags of let's
make healthy businesses becausehealthy businesses grow healthy
careers, grow healthy futures.
So together we're gonna keepdoing this, April.
Yes, yes, thank you so much,Betsy.
(27:10):
You are so welcome.
If anyone who is watching wouldlike to hear more from April or
talk to April, I'm going tolink her email address and the
Copes of Odie website in ourpodcast.
Um, we would love for you tohave those conversations with
her or contact us at Strategies.
We can absolutely get you intouch as well.
Um, and thank you, April.
(27:32):
Cheers to Healthy BeautyBusinesses and continued success
for all of them.
Of course.
I wish I had a glass of wine.
I know, right?
Cheers to my my water and my mystemless wine glass.
Cheers.
April (27:44):
Yeah.
Christy (27:46):
All right, April.
Thank you so much.
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