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LSDefine
Simple English definitions for legal terms
cash-equivalent doctrine
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A quick definition of cash-equivalent doctrine:
The cash-equivalent doctrine is a rule in taxes that says you have to report all the money you make, even if you didn't get paid in cash. This means that if you trade something for goods or services instead of money, you still have to tell the government how much you made.
A more thorough explanation:
Definition: The cash-equivalent doctrine is a tax principle that requires individuals to report income even if it is not in the form of cash. This means that if a taxpayer receives non-cash payments, such as goods or services, they must still report the fair market value of those payments as income on their tax return.
Example 1: John is a freelance graphic designer who agrees to design a website for a local restaurant in exchange for a year's worth of free meals. Even though John did not receive cash for his services, he must still report the fair market value of the meals he received as income on his tax return.
Example 2: Sarah is a musician who performs at a local bar in exchange for a percentage of the bar's profits for the night. Even though Sarah did not receive cash for her performance, she must still report the fair market value of her share of the profits as income on her tax return.
These examples illustrate how the cash-equivalent doctrine applies to non-cash payments. Even though the payments are not in the form of cash, they still have value and must be reported as income for tax purposes.