In: Accounting
You found an item totaling $48,000 treated as miscellaneous expenses. You seek clarification from the tax payer and was told that from 1 July 2020, he was appointed as a part-time consultant to a company and received a total of $48,000 for the period of 1 July 2020 to 31 December 2020. However, he did not declare it as income as he argued that it is not related to his business. Instead he treated it as miscellaneous expenses, a replacement cost for the time he spent on consulting and not attending to his own business (treated as expense for time spent/lost).
Explain the implication of the items and suggest the tax treatment you would adopt in addressing the issues.
The detailed answer for the above question is provided below:
Step 1/1
$48000 has been treated as a miscellaneour expense. The miscellaneous expense was not considered part of the income because it is not related to the business, which is not appropriate. He needs to declare the sum as part of the income.
Treating the sum of $48000 as expense is incorrect, it is another source of income apart from the business. It is thus included in the part of the income and accordingly tax needs to be computed.