Is Imputed Income Good or Bad? Explanation

Before anything is declared good or bad, it is usually assessed first, especially when it is related to services or money. Imputed income is the value of benefits or services that an individual receives but doesn’t pay for.

For instance if you receive a benefit, which could also be tangible or intangible, it would be classified as imputed income as long as you didn’t pay for it.

Imputed income is defined this way because it is not explicitly received as cash, rather it comes as a form of benefit or compensation. And the thing with this is that it has a monetary value. If the organisation where an employee works decides to provide a company car for free to either or all of the employees, the value of such benefit is considered imputed income.

Not only that, this type of income can also arise from other sources, such as investments that generate benefits without a direct production of cash. Imagine you have a personal business of yours but at the same time receive services that come with a discount or totally free, that act is considered to be imputed income. It could just be a business you have an interest in that gives you free services, that is also considered imputed income.

Is Imputed Income Good or Bad?

Now, let’s get back to the question at hand: is imputed income good or bad. From the introductory paragraphs, we now have an idea as to what the term means.The thing about imputed income is that imputed income can either be good or bad depending on the context. As a business owner who receives discounted or free services how would you rate imputed income?

Those who see imputed income as being good and positive do so because it can provide individuals with valuable benefits and perks, like the free company car that was earlier used to illustrate imputed income.

Moreover, this is seen as a way to improve the quality of life of employees, as well as their overall well-being. Those who see imputed income as being bad or negative have their reasons for that. Because imputed income is accompanied with tax complexities and liabilities, it is seen as unfavourable.

It is not only subject to tax authorities, it also creates an avenue for inequality and unfair advantages. Research suggests that inequality is promoted when certain groups or employees receive preferential treatment or benefits.

Imputed Income and Tax

Known for its tax complexities and liabilities, imputed income is essentially subject to tax. The relationship between these two is evidenced when tax authorities require people to report imputed income on their tax returns and lay taxes on its value.

Since tax is a compulsory payment that is levied by the government on individuals, it is expected for individuals to accurately calculate and report imputed income so as to avoid penalties from the relevant authority.

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