You Decide 1
Memo
To: John & Jane Smith
From:
Re: Memo summarizing various tax issues
1. John Smith 's tax issues:
Issue a) How is the $300,000 treated for purposes of federal tax income?
Applicable Law & Analysis: http://www.irs.gov/businesses/small/selfemployed/index.html
Conclusion: The $300,000 will be treated as self- employed income. Generally you are self-employed if you carry on a trade or business as a sole proprietor, independent contractor, or if you are a member of a partnership. Self-employed individuals are required to file an annual return, and pay estimated tax quarterly.
Issue b) How is the $25,000 treated for purposes of federal tax income?
Applicable Law & Analysis: www.irs.gov
Conclusion: The $25,000 will be treated as self- employed income as well. John was awarded the 25,000 that paid up front expenses, so the number will cancel each other out.
Issue c) What is your determination regarding reducing the taxable amount of income for both (a) and (b) above?
Applicable Law & Analysis: http://www.efile.com/tax-credit/federal-tax-credits/. Publication 526- Charitable contributions. Section 170-charitable contributions and gifts ( c). Section 48- energy credit
Conclusion: Establish a self- employed retirement plan, make IRA contributions, make charitable donations including asset donations according to organizations described in section 501 (c)(3), make energy efficient improvement to the home according to IRC code 48.
Issue d) Do I get better tax benefits for paying the lease on office space or for buying the building? What are the differences?
Applicable Law & Analysis: IRC Code 167- there should be allowable reasonable depreciation for wear and tear on property used in the trade or business. (http://www.law.cornell.edu). http://www.microsoft.com/business. IRC Code 179-allows tax payers to deduct the cost on certain types of property.
Conclusion: There are better tax benefits for buying the
To: John & Jane Smith
From:
Re: Memo summarizing various tax issues
1. John Smith 's tax issues:
Issue a) How is the $300,000 treated for purposes of federal tax income?
Applicable Law & Analysis: http://www.irs.gov/businesses/small/selfemployed/index.html
Conclusion: The $300,000 will be treated as self- employed income. Generally you are self-employed if you carry on a trade or business as a sole proprietor, independent contractor, or if you are a member of a partnership. Self-employed individuals are required to file an annual return, and pay estimated tax quarterly.
Issue b) How is the $25,000 treated for purposes of federal tax income?
Applicable Law & Analysis: www.irs.gov
Conclusion: The $25,000 will be treated as self- employed income as well. John was awarded the 25,000 that paid up front expenses, so the number will cancel each other out.
Issue c) What is your determination regarding reducing the taxable amount of income for both (a) and (b) above?
Applicable Law & Analysis: http://www.efile.com/tax-credit/federal-tax-credits/. Publication 526- Charitable contributions. Section 170-charitable contributions and gifts ( c). Section 48- energy credit
Conclusion: Establish a self- employed retirement plan, make IRA contributions, make charitable donations including asset donations according to organizations described in section 501 (c)(3), make energy efficient improvement to the home according to IRC code 48.
Issue d) Do I get better tax benefits for paying the lease on office space or for buying the building? What are the differences?
Applicable Law & Analysis: IRC Code 167- there should be allowable reasonable depreciation for wear and tear on property used in the trade or business. (http://www.law.cornell.edu). http://www.microsoft.com/business. IRC Code 179-allows tax payers to deduct the cost on certain types of property.
Conclusion: There are better tax benefits for buying the