You Decide 1

Memo
To:John & angstrom; Jane Smith
From:Tanisha Davis
Date: [ 11/25/2012 ]
Re:Memo summarizing various tax issues
1. John Smiths tax issues:

wall socket a) How is the $300,000 toughened for purposes of federal tax income?

Applicable Law &type A; analytic thinking: According to the IRS Pub 538, Most individuals use the cash in method acting of accounting, unless you produce, purchase or sell merchandise in which inventory is involved. Based on the cash basis method of reporting income, the income received for the service rendered is recognized when it is received (retrieved from hypertext transfer protocol://www.irs.gov/publications/p538/ar02.html#en_US_201212_publink1000270640).

Conclusion: For purposes of federal tax income, the $300,000 is treated as self-employment income and relegate to self-employment taxes, federal income taxes, and in some moorages, state income taxes.

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

Applicable Law & abstract: Section 61 of the Tax code defines gross income as all income from whatever source derived, thus consisting of compensation for services, interest, rents royalties, dividends and annuities (Smith, Harmelink, & Hasselback, 2012). As shared previously, based on the cash method to report income, the income is realized at the time of receipt.





Conclusion: Since this case has been going on for over two years, the expenses should have been expensed at the time the expenses took place. Regarding recovery, since the $25,000 was received at the time of the award, the $25,000 would also be included as income for the current tax year in which you are filing.

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

Applicable Law & Analysis: Smith, Harmelink, & Hasselback (2012) share that the four categories of tax deductions include sell/business expenses, expenses incurred for the production of income, deductions for losses, and personal expenses....If you want to get a full essay, order it on our website: Ordercustompaper.com



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