Question

Dave is a plumber who uses the cash method of accounting. This year Dave requested that his clients make their checks payable to his son, Steve. This year Steve received checks in the amount of $109,500 for Dave's plumbing services. Which of the following is a true statement?

a. Dave is taxed on $109,500 of plumbing income this year.
b. Steve is taxed on $109,500 of plumbing income this year.
c. Steve is taxed on $109,500 of income from gifts received this year.
d. Dave may deduct the $109,500 received by Steve.
e. All of these are true

Answer 1

Option A is correct

Step-by-step explanation:

What we need to know to solve this question is how the cash method for accounting works in this scenario.

Thus, using the cash accounting method income is to be recognized when cash is received, thus the taxpayers for tax purposes will be reporting income when the income is received (in the form of services, cash, property, etc.).