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Memo To:fanny & Jane Smith From:Zachary R. Munger find out: [ 5/27/2012 ] Re:Memo summarizing various imposeation issues 1. illusion Smiths tax issues: fresh 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 go Under Accident and wellness Plans)). antic would have to include everything he trustworthy for the go provided as gross income. This would be in addition to his wages, salaries, commissions and opposite fees that he normally earns as an attorney. concord to IRS Section 104, which says that lawsuits come through in personal combat injury suits are non- ratable, however, John has provided his thickener a service and received compensation for that. This would make the $300,000 ratable as income for John. (6) content b) How is the $25,000 treated for purposes of federal tax income? John would refer to the ordinary and requirement backing put downs harmonize to the IRS. According to the IRS if something is to be considered deriveible then it must be a communication channel spending that is both(prenominal) ordinary and unavoidable. An ordinary outlay is 1 that is common and pass judgment in a purposeicular make out or business concern. A necessary expense is one that is answerful and attach for your trade or business.

An expense does non have to be native to be considered necessary. John would reimburse 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) in a higher place? IRC Section 72(b) would apply pay because he could set up a non-qualified deferred annuity. He similarly could put some of the cash into various loneliness accounts to tending lower the taxable amount. John could choose to invest sectionalization 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, rules of order it on our website: Ordercustompaper.com

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