AC553 W4 You Decide Activity

AC553 W4 You Decide Activity

1(a)

Federal Income Tax laws dictate that the $ 300,000, gross income of Mr. Smith, earned as lawyer fees for successful litigation, is taxable. This definition of gross income is put forth in IRC Code Section 61(a). Moreover, the taxes have to be settled in time; as laws are clear with regards to non-timely tax payments. The IRC code section iterates that late payment would be deducted a penalty. Moreover, John has the power to choose to make annuity payments of income tax, for the taxable income of $300,000.

1(b)

John Smith's client also disbursed to him an additional $25000 as expenses that John has paid himself, up front. In case if John has entered $25000 in his books as expenses, for the year, than this income is taxable as per IRC codes. However, if John has not practiced, as mentioned above, than he has the leeway to record this figure as deferred expenses, as per IRC Sec. 111 (a). This is because now John has the chance to settle the entry of deferred expenses with the amount of $25,000. This would create no impact on John's taxable income.

1(c)

As suggestions were made in 1(a), Mr. John Smith would have to use annuity payment option to settle the income taxes due on the $300,000 income, he has received from the client, for which he has won a personal injury case. Furthermore, with respect to the additional $25000, received by Mr. John Smith, the amount will be treated as settlement of deferred expenses and thus would not be taxed.

2(a)

Tax payment, based on the two approaches that can be used by Jane Smith, as mentioned in the question, has one major implication. These approaches would bring about different tax payment figures. However, this difference is small in terms ...