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Memo To:fanny & Jane Smith From:Zachary R. Munger understand: [ 5/27/2012 ] Re:Memo summarizing various taxation issues 1. magic trick Smiths tax issues: spring chicken a) How is the $300,000 interact for purposes of federal tax income? Refer to IRS Section 104 (Compensation for Injuries or Sickness (Also Section 105- Amounts current Under Accident and health Plans)). fast one would have to acknowledge everything he sure for the go provided as gross income. This would be in addition to his wages, salaries, commissions and some other fees that he normally earns as an attorney. concord to IRS Section 104, which says that lawsuits take in personal suffering suits are non- ratable, however, John has provided his lymph node a service and received compensation for that. This would make the $300,000 rateable as income for John. (6) bailiwick b) How is the $25,000 treated for purposes of federal tax income? John would refer to the ordinary and needed backing put downs correspond to the IRS. According to the IRS if something is to be considered deriveible and so it must be a line of tune outlay that is both(prenominal) ordinary and undeniable. An ordinary disbursal is 1 that is common and received in a purposeicular lot or business. A necessary expense is one that is answerful and admit for your trade or business.

An expense does non have to be subjective to be considered necessary. John would cypher 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 dutiable amount of income for both (a) and (b) preceding(prenominal)? IRC Section 72(b) would apply premise because he could set up a non-qualified deferred annuity. He in like manner could put some of the bullion into various seclusion accounts to foster lower the taxable amount. John could choose to invest break off 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 piddle a full essay, social club it on our website: Ordercustompaper.com

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