Question

Bill is babysitting Sally's child everyday after school in exchange, Sally mows his lawn. Is this transaction tax free yes or no?

Answer 1

It depends on the country where you belongs to and the income you earn from babysitting each year. Countries like England, America, Canada, and Australia all have progressive tax systems. That means the income which  you earn during that year, you have to pay the higher expected tax rate.

Talking about the general rule related to babysitting, You have to declare income earned from babysitting in your tax return even if you get paid cash.

Thus government cannot trace the earnings getting paid in cash. The tax authorities (government) have some pretty sneaky ways of tying you back to your babysitting activities.

So it's good to be honest and declare your full amount which you earn from babysitting income on your taxes, instead of risking fines or penalties later on.

Alternatively, getting any service in exchange of babysitting service is also not traceable by the government, so you should be honest and should declare the cost of service (mows his lawn) as a income earned from babysitting.

This transaction lies on Bartering system of IRS and should reporting while you preparing tax return. You should valued the cost of service or goods you barter at fair value and should report in your tax return.