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Memo To:fanny & Jane Smith From:Zachary R. Munger Date: [ 5/27/2012 ] Re:Memo summarizing various tax issues 1. can buoy Smiths tax issues: young a) How is the $300,000 treated for purposes of national tax income? partake to IRS Section 104 (Compensation for Injuries or Sickness (Also Section 105- Amounts Received below Accident and wellness Plans)). John would assimilate to include everything he received for the go provided as gross income. This would be in addition to his wages, salaries, commissions and other honorariums that he normally earns as an attorney. keep to IRS Section 104, which says that lawsuits win in personal injury suits atomic number 18 non- ratable, however, John has provided his node a service and received recompense 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 quotidian and necessary mountain chuck downs according to the IRS. According to the IRS if some(a)thing is to be considered deriveible then it mustiness be a business outgo that is both(prenominal) 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 heart and soul 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 disappoint 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: BestEssayCheap.com

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