You Decide Essay

1273 Words6 Pages
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. This plan allows for a “greater retirement contribution which in turn can mean increased tax deductions and lower taxable income.”1 However, for such a large amount of earnings this will only represent a small portion, but every little counts. On the other hand the $25,000 you put up front for your client can help offset your taxable income. This money is deductible as a business expense and would help offset your business income. Keep in mind that if you already took the deduction when the expense was put up two years ago, then you cannot take it again. If this is the case the $25,000 would also be taxable income. You have a registered LLC, but you may have the option to choose to report these amounts using your personal tax return on Form 1040 schedule C or file separately using form 1065, schedule K-1. However if the business is incorporated you would need to use form 1120 and a separate set of rules apply to corporations. The $3,500 lease you currently pay for the office space is also treated and reported as a business expense. As you are considering buying the entire building, you would benefit from owning and

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