John Smith, Esq.
I worked on this case for over two years. The jury awarded my client $2,000,000 in damages, of which my fee was $300,000 plus recovery of expenses paid up front in the amount of $25,000. How is the $300,000 taxed? What about the $25,000? What can I do to minimize the tax consequences of each?
Also, I am thinking about buying the building that I currently lease my office space in. My current lease is $3,500 per month. How is this lease reported on my income tax returns (either personally or for my business which is a separate law practice established as an LLC)? Do I get better tax benefits for paying the lease or for buying the building? What are the differences?
John Smith tax issues:
1. How is the $300,000 treated for purposes of Federal tax income?
2. How is the $25,000 treated for purposes of Federal tax income?
3. What is your determination regarding reducing the taxable amount of income for both (a) and (b) above?
4. Should John and Jane file separate tax returns or jointly?