In: Accounting
With reference to relevant legislation and case law, determine if the following scenarios give rise to income for tax purposes:
(a) John is a pensioner and swapping his surplus free range eggs valued at $150 (for the year) with his neighbour Alex for surplus vegetables grown in his home garden.
(b) David is a builder and helping John at weekends to build his home, doing so on the basis that David can have John’s caravan towed trailer (which cost him $10,500 on 1 January 1997) when John move into his current home. Assume the value of the David’s work was $11,000 and the caravan had a market price of $12,000 when John handed it over on 1 January in the current income year
Answer a:
Bartering is the exchanging of one good or service for another. The IRS suggests every taxpayer that the average market price of goods or services acquired by the exchange is taxable interest. Both should inform as income the amount of the goods plus services acquired in the trade/exchange. It is acknowledged as revenue to a company, simply like additional revenue. Barter activities must be reported.
Therefore, $150 is the taxable income.
Answer b:
If John sold his caravan furthermore he could have earned 12000. So, John is supposed to be spending 12000 in return for David's work. We should understand that he marketed his caravan at a market value of 12000 providing an increase to capital profits of 1500, an income for John to be listed from tax schemes. And David practiced returning for his help he would have exacted 11000. Consequently, while he is taking a caravan in the market for services proposed to the number of 11000 it could indicate that the Service revenue of David is 11000 for tax proposals.
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