You Decide

Memo
To:fanny & Jane Smith
From:Zachary R. Munger
Date: [ 5/27/2012 ]
Re:Memo summarizing various tax issues
1. John Smiths tax issues:

young a) How is the $300,000 treated for purposes of federal tax income?

Refer to IRS Section 104 (Compensation for Injuries or Sickness (Also Section 105- Amounts Received Under Accident and wellness Plans)). John would have to include everything he received for the go provided as gross income. This would be in addition to his wages, salaries, commissions and other fees that he normally earns as an attorney. concord to IRS Section 104, which says that lawsuits win in personal injury suits are non- ratable, however, John has provided his node a service and received compensation for that. This would make the $300,000 nonexempt as income for John. (6)

Issue b) How is the $25,000 treated for purposes of federal tax income?

John would refer to the ordinary and necessary backing put downs according to the IRS. According to the IRS if something is to be considered deriveible then it must be a business expense that is both ordinary and necessary. An ordinary expense is 1 that is common and accepted in a purposeicular trade or business. A necessary expense is one that is answerful and appropriate for your trade or business.



An expense does non have to be indispensable to be considered necessary. John would deduct the $25,000 as a business expense since it would qualify as both ordinary and necessary. (4)

Issue c) What is your determination regarding reducing the taxable amount of income for both (a) and (b) above?

IRC Section 72(b) would apply present because he could set up a non-qualified deferred annuity. He besides could put some of the money into various retirement accounts to help lower the taxable amount. John could choose to invest part of his fee collected into his retirement accounts to reduce the taxable amount. If he invested some of it into the company he could make it a business expense which...If you want to get a full essay, fiat it on our website: Ordercustompaper.com



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