How to track cash income and tips when you are self-employed

Why cash needs its own care

Card and app payments leave a trail: the processor has a record. Cash leaves none unless you make one. If you do not write a cash payment down, the only record is your memory, which is a poor tool at the end of a long week and a poor defense if you are ever asked to show your income.

What to record for every payment

Whatever tool you use, capture the same four things:

• The date you were paid.
• The amount, including any tip.
• How it was paid (cash, card, digital payment, check or other).
• Who or what it was for, in a few words.

Keep tips visible

A tip is part of what the customer handed over, and part of your income. Record it, but record it separately from the price so you can see both. Tips are also often paid differently from the service: a card for the cut and cash for the tip. Noting how each part was paid keeps your cash and card totals matching what is in your pocket and what the card reader reports.

A daily and a monthly habit

Daily: at close, add up the cash payments in your log and compare them with the cash you took in, allowing for the float you started with. A small gap is normal. A large one means a payment was missed, which is easiest to find the same day.

Monthly: export your records to a file and keep a copy somewhere other than your phone. If you later need to show income for a loan, a lease or a tax question, a dated record kept as you went is far more convincing than numbers rebuilt afterwards.

What the tax rules say, in general

Self-employed people generally owe income tax and self-employment tax on all business income, including cash and tips, and pay it through estimated payments during the year. Payment apps and card processors may send you a Form 1099-K for what passed through them, and the reporting thresholds have changed more than once, so check the current rule on irs.gov. Either way, the income is yours to report whether or not a form arrives. This is general information, not tax advice.

Putting some aside as you go

Because nobody withholds tax from cash, the money has to be set aside by you. See the guide on setting aside money for taxes every week, or try the free self-employed tax calculator for a number based on your own sales and expenses.