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

Answer 1

Answer:

Dave is taxed on $109,500 of plumbing income this year.

Explanation:

Dave is the plumber who worked and got paid $109,500 during the year so he should be taxed for it. The fact that Dave made his clients make their checks payable to his son Steve doesn't change the fact that Steve didn't perform any work and the money is part of Dave gross income.

E.g. Dave could have asked a client to write a check payable to a car dealer in order to pay for maintenance services performed on Dave's car, but it would still be Dave's income.