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Let's say that I'm single and romantically interested in a young waitress at the local diner. Business is slow and in chatting I come to learn she's behind on her electric bill and it's going to be cut off. Is it a gift or a tip if: a.) I write a check to the electric company directly, b.) leave a tip and some extra cash for the express purpose of allowing her to pay the electric bill, or c.) write an amount for both the tip and electric bill on the tip line of my credit card slip. Does it make a difference if I'm a regular or if it's my first time there? There's a continuum between a strictly waitress/patron relationship and friendship that can occur--where's the line between tip and gift?

Enter one of the Tax Top Ten, "facts and circumstances." There is no bright line. Digressing slightly, but promising to connect, I just love the people who prattle about how having a flat tax would make everything so simple. Whether you have 1 bracket or 100 has zero effect on return prep complexity. (More brackets = more complexity for the people who have to come up with the Tax Tables, but not the taxpayer preparing the return.) The complexity, and the bulk of the Code, involves defining income.

In your particular scenario I'd say that option a is clearly a gift, at least until she rejects your suit and the gift suddenly becomes a loan and the two of you appear on Judge Judy. The others are murky, but an example of why it's important to think and research before you act, not after. The futher you remove the supposed purpose, paying her bill, from the process of getting the money to the electric company, the murkier it gets. Bringing in the employer by putting the amount on the charge slip certainly makes it look more like a tip, especially when you look at the allocated tips rules.

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