Question

susan is employed in the family business, which is a medium sized accounting firm. Both her parents are partners in the five partner firm.that operates the business. Susan has been an employee for the.last three years. During the current tax payer, Susan eeceived several amounts in addition to her normal wage which was equivalent to the other employees with similar experience and aimilar qualifications. One evening during discussions over the dinner table, Susan's father asked her whether she had any good.ideas on how.to.improve the client base of a firm. Susan had been thinking about this for sometime and she prepared a two page document outlining her ideas which her father presented to the other partners. one of susans ideas was adopted and proved moderately successful in attracting new clients. At the end of the financial year, Susan was surprised to recieve an envelop with a.letter thanking her for her ideas and a cheque for$2000. Does susan have to pay tax on the.money she received

Answer 1

Answer:- Susan received a surprise envelope against an idea given by her to the firm, which can be considered as an appreciation gift for her idea. In Income tax rule- Any amount received by relatives is not taxable .If amount of gift is upto Rs.50,000,then there is no tax to be paid on gift received (cash or kind). Another rules of Income tax for gift, is that any amount received from specified reletives is tax free in the hands of receipents.

However ,Susan was personally asked for an idea to improve client base by her parents and the surprise cheque received can be considered as a gift from her parents and Income tax rule says when you receive cash or cheque from your parents ,the IRS doesnot consider it taxable income unless your parents have paid the cash as income for the job you have done.If cash exceed IRS limit ,then Parents may be subject to gift tax.

IRS publication 929 provides a formula for calculating when you need to file if you have mix of earned and unearned income.If you work for your parents or for anyone and you earn less than Standard deductiona then you don't owe taxes. So,the income received by Susan as a surprise cheque of $20000 can be considered as gift from her parents and will not be taxable .