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How to Tip This Holiday Season

"Early Show" financial guru Ray Martin explains in his column how to observe holiday tipping etiquette without breaking the bank.

With more folks focused on keeping their holiday spending within their limits, it's no surprise that people will need to think carefully about tipping.

Holiday Gift Guide

In general, it's customary to tip people who reliably and faithfully served you all year long. It's a good idea to extend a gesture of thanks to people who make your life better, easier or safer in some way. Of course you want to recognize their service, but you also want to do what's appropriate. So what are the guidelines, particularly when you're feeling strapped for cash? If you do plan to give tips this year, these are a few tips on tipping:

Don't Always Give Cash: When talking about tipping, cash of course is king. However, it's probably not appropriate to give cash to everyone on your list. It may be in conflict with professional or ethical standards for folks like your lawyer, financial advisor or accountant to accept cash tips. Also, think about other situations - what's the message when you give your child's teacher $25 cash? It may create the appearance of a payment for preferential treatment for your child. As an alternative, consider taking up a collection with other parents to purchase an office supply or book store gift card. Also, keep in mind that postal employees and other civil servants are not allowed to accept cash, gift cards or anything worth more than $20.

Don't Be Too Personal: If you choose to give a gift instead of cash, make sure it's appropriate based on your relationship with the recipient. Anything too personal might send the wrong message and make the person receiving your gift feel uncomfortable.

Don't Tip Everyone: Business owners who employ the people that provide a service for you don't expect tips, and receiving one could even be awkward for them. Remember that they are rewarded all year with your patronage to their business. Instead, direct your tips to the owner's most deserving employees.

Don't Expect Special Treatment: Giving a tip is a way of showing appreciation, not a request for preferential treatment or service. On the other end of the scale, tipping does not make up for being a rude customer.

Don't Go into Debt: You should never feel pressured into giving a holiday tip. Also, don't feel that you have to increase your debt or deplete your emergency funds to make tips. If your financial situation doesn't allow for tips, send a personal note of thanks to the person or their employer instead. If your financial situation improves after the holidays, you can consider giving a tip at a later time. Think your budget doesn't have room for tipping? According to the National Retail Federation, holiday shoppers plan to spend at least $100 on themselves -- cutting back here can help to allow for making some well-deserved tips.

Here are some suggestions on Holiday Tipping Etiquette from the Emily Post Institute:

Baby Sitter: a night's pay and small gift from the children
Day-care Provider: a small gift from you, or $25-$70 & small gift from children
Au Pair/Nanny: a week's pay and small gift from child
Housecleaner: pay for up to one weeks pay, or a small gift
Apartment Building Superintendent: $20-$80, or a gift
Apartment Building Doorman: $15 to $80, or more
Trash Collector: $10-$30
Paper Delivery person: $10-$30, or small gift
Beauty Salon staff: cost of one treatment
Dog Walker: up to one weeks pay, or a small gift
Fitness Trainer: cost of one session, or small gift
Teacher: small gift (never cash) plus a note of thanks

Tipping and Taxes:
Remember that generally tips are not tax deductible. However, there is a possible exception. Donating school supplies may qualify as a charitable deduction. You can only deduct the amount/value of your contribution that is more than the value of the benefit that you or your dependents receive. In other words, if you give school supplies, you can only deduct the value of the supplies that do not benefit your child.

Another possible tax-deductible charitable donation can be given to the neighborhood police or fire department by donating to their widows and orphans fund.

If you receive tips, keep a daily tip record. Do not report service charges that your employer adds to the bill. These are W-2 wages. You should report tips you receive to your employer, who will then withhold taxes and report the proper amount to Social Security. Doing this could boost the amount of benefits you may receive when you retire.

You may be exempt from reporting tips if it's not customary to tip for the service you provide. The IRS may be willing to concede that additional payments received for normal services may not be tips and may be tax-free gifts from the customer.

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