Jane Smith Case Study

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Dear John and Jane Smith, Presented within this memo, you will find answers to your questions brought up during our meeting. Please take a look and let me know what you decide based on the facts below. John, congratulations on winning your case, now regarding the money you received as part of the settlement; as you said was in the amount of $300,000 and it represented your legal fees. As such this would be treated as ordinary self employment earnings in other words taxable income. Justifiably, since the amount is substantial you are considering some other options. To help minimize the impact you can put some of it away into a Self Employed 401K. Since the money is considered earned, you are able to put some of it away for your retirement.…show more content…
As long as there’s intent to make a profit and actively continue to carry out the jewelry making, Jane should report her business and benefit from additional tax deductions5. You may still file under one return and combine all income and expenses for both businesses. But as your businesses grow, you might want to consider separate tax filling and reporting to keep each business separate. For now, a joint return is acceptable and John may even benefit more from Jane’s lower income and tax bracket when…show more content…
Planning your future business transactions can assist you in mitigating tax implications relating to your business as well as your personal lives. John has received the money from the settlement and there’s not much to do to mitigate the tax impact strictly on those earnings; but by using the funds to save for retirement, invest in the new building, purchase a new home, and even to help Jane start up her business will help decrease the overall impact as well as help you guys be better off business wise. The building and the equipment will become capital assets for each business and these can be depreciated over their useful life decreasing the burden on the businesses. Additionally any ordinary and necessary business expense can be used to offset their earnings and lower their tax liability even further. Hope all this information has helped you in some way, please let me know if you have additional questions or concerns. I’ll be happy to assist you with any decisions you

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