Items Included in Income

The IRS does not treat payments from customers as gifts simply because the customer calls them a gift. A true gift, in the tax sense, comes from detached generosity with no expectation of goods, services, or a business relationship in return. Courts have consistently held that when money flows from a customer to a business owner in a commercial context, it is almost always taxable income - and that includes tips, even when the customer views them as purely voluntary. When a specific payment is ambiguous, the burden falls on the taxpayer to prove the transfer was personal and disconnected from the business relationship. Readers should confirm current thresholds and rules with a licensed CPA or on IRS.gov.