Question

Luz moonlights as a waitress at a restaurant. She needs the extra income, and she feels very frustrated that the state and federal
government take too much money from her salaried day job. It's not the most appealing work considering it's after a full day at the
office, but she considers the tips tax free. What is her tax strategy?

Answer 1

Luz's tax strategy as described involves reducing her overall taxable income.

Tax strategies

Although, there are a number of ways an individual can go about tax planning, in which case it primarily involves three basic methods:

• Reducing one's overall income,
• increasing one's number of tax deductions throughout the year, and
• Taking advantage of certain tax credits.

In this scenario described in the question, it follows that Luz reduces her taxable income by considering the tips as tax free income.

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