The "Libertarian Tip" thing isn't just illegal; it's also kind of dumb

I'm sure you've seen the "How A Libertarian Tips" image making the rounds on this world wide web, but if not, here ya go:


Let's get the obvious out of the way here: This statement in no way relieves a server of the obligation to report this money as a tip. The intent may be good, sort of, but the libertarian is inviting the server to just ask for an audit. It turns out there are no simple tax loopholes, regardless of what libertarians might tell you.

However, if you were to try this dodge (which I do not recommend), there are a couple of problems with the execution as depicted above. The most obvious one is that writing "Taxation is theft" on the tip line is an invitation to further investigation. If you want to make it look as though you aren't leaving a tip, it would be smarter to just write "0.00" on the line, or, if you absolutely must embellish the scam, write "bad service" or something that doesn't make it obvious that your'e trying assist the server in avoiding paying taxes.

The second problem is a bit more arcane, but bear with me. I have a lot of experience with IRS reporting with regards to tipping. One of the things that the IRS looks at when trying to determine if a server is under-reporting their tips is the difference between their average tip percentage on credit cards versus their declared average tip percentage for cash. If a server is making 20% tips on credit cards but they're only declaring 5% for cash, that's a red flag. Any gap larger than 3 percentage points will get you some raised eyebrows. 

Here's where it gets tricky: The sale is classified not by how the guest paid for the transaction, but by how they tipped. By leaving no tip on a credit card sale, that sale now goes into the "cash" side of the equation. If you insist on trying to pull a fast one on the IRS (and really, please don't put a server in that position), leave $0.01 as the tip and then the rest as cash. That will lower the server's overall tip percentage on the credit card side and thus the percentage of declared cash tips that will look suspicious to an auditor.

However, let's end this with a big ol' bummer: There is no magical "minimum percentage" a server can declare that will keep them on the good side of an IRS audit. The law is that you have to declare 100% of your tips. There's no loophole. I get that taxes suck, but please don't be tricked into thinking that calling tips a "gift" will magically get you out of paying them.