I have built a web application for free for a friend to use. We assume there will be no charge ever made for the service of building and maintaining the web app. Let's say my friend feels obligated to be extra helpful to me because I helped her with this free service. She buys me things like food and clothes. We don't consider these things gifts, but think of them as favors. What's a possible implications of this as far as taxes go? Is this considered a trade? Services were rendered, but no tracking of how much work went into the application was made.
1 Answer from Attorneys
It's income from self employment. It sounds like an effort to fool the IRS by characterizing income as something other like favors or gifts. Remember the service looks to the substance of the transaction rather than what people choose to call it. Whether you get caught is another story.
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