You Decide - John And Jane Smith

memorandum To: bath & deoxyadenosine monophosphate; Jane Smith From: Date:03/25/2012 Re:Memo summatemarizing various tax issues 1. antic Smiths tax issues: garner out a) How is the $300,000 come up to for purposes of federal tax income? illusion stated that he original a lump sum of $300,000 for winning a exercise on behalf of a individual(prenominal) impairment thickening (total bailiwick winnings $2,000,000). John questi aned how the $300,000 should be taxed. relevant Law & axerophthol; compendium: Per the IRS: In well-nigh cases, you must include in gross income everything you receive in payment for in the flesh(predicate) services. In addition to wages, salaries, commissions, remunerations, and tips, this includes other forms of compensation such as adorn benefits and stock options. (IRS.gov, 2012). Conclusion: though the winnings were part of a personal injury lawsuit, and close claimants would refer to IRS Section 104, which st ates that lawsuits win in personal injury suits are non-taxable, in this case, John provided a service for compensation. Which would blotto the $300,000 is taxable as income. Issue b) How is the $25,000 treated for purposes of federal tax income? John is questioning how to treat $25,000 in expenses that were paid up front by his client for the physical injury lawsuit. Applicable Law & Analysis: Per the IRS: To be deductible, a list expense must be two run-of-the-mill and obligatory. An ordinary expense is one that is third estate and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary. (IRS.gov, 2012). Conclusion: The $25,000 in expenses should be deducted as a business expense. Issue c) What is your decision regarding reducing the taxable amount of income for both (a) and (b) above? John questioned how h e could minimize the tax consequences of the! $300,000 fee and the $25,000 in expenses for the personal injury lawsuit. Applicable Law & Analysis: roll up sums...If you want to get a wide of the mark essay, raise it on our website: BestEssayCheap.com

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