"The maximum annual deduction is $25,000. For self-employed individuals, the deduction may not exceed the individual's net income from the trade or business in which the tips were earned. In other words, the deduction cannot be used to create a net operating loss (or negative income) which can be carried forward to offset future income. The deduction phases out for taxpayers with modified adjusted gross income over $150,000, or over $300,000 for joint filers."
"There are some limitations. Self-employed individuals in a Specified Service Trade or Business (SSTB) are not eligible for the deduction. A business is considered an SSTB if the principal asset of that business is the reputation or skill of its owners and employees. The treasury regulations list examples of SSTBs which include services in the fields of health, law (emphasis added), accounting, actuarial science, performing arts (remember this), consulting, athletics, financial"
The law allows employees and self-employed individuals to deduct qualified tips from 2025 through 2028 when received in occupations that customarily and regularly receive tips, with the IRS required to publish an occupations list by October 2, 2025. A qualified tip is a voluntary, nonnegotiated customer payment with no consequence for nonpayment. The deduction is capped at $25,000 annually and, for self-employed individuals, cannot exceed net income from the tipped trade or business or create a net operating loss. The deduction phases out for single filers over $150,000 and joint filers over $300,000. Specified Service Trade or Business (SSTB) taxpayers are excluded, and examples cited include health, law, accounting, actuarial science, performing arts, consulting, and athletics.
Read at Above the Law
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