bruce wilson won 2 million in the state lottery. the lottery pays out the prize money in 20 annual installments of 100,000 each. After receiving three 100,000 installments, bruce sold the remaining 1.7 million of payments for 1 million. He wants to report the 1 million as long-term capital gain on his tax return, and pay tax at the 15 percent long term capital gains tax rate rather than at his 35 percent marginal tax rae for ordinary income. Bruce requests you to research the law regarding the tax treatment of the 1 million and advise him on whether the payment qualifies for the 15 percent tax rate or would be taxed as ordinary income at his 35 percent marginal tax rate.

Question

bruce wilson won 2 million in the state lottery. the lottery pays out the prize money in 20 annual installments of 100,000 each. After receiving three 100,000 installments, bruce sold the remaining 1.7 million of payments for 1 million. He wants to report the 1 million as long-term capital gain on his tax return, and pay tax at the 15 percent long term capital gains tax rate rather than at his 35 percent marginal tax rae for ordinary income. Bruce requests you to research the law regarding the tax treatment of the 1 million and advise him on whether the payment qualifies for the 15 percent tax rate or would be taxed as ordinary income at his 35 percent marginal tax rate.

Answer 1

Congress recently enacted an non refundable credit based on the cost of the qualifying alcohol and drug abuse counseling programs provided by and corporate employer to its employees . The credit is limited to 50 % of the total cost of the program .if a corporation elects the credit, none of the program costs are allowed as a deduction. Any credit in excess of current year tax may not be carried back to forward to another year.

A. TMM Corporation spent $ 80,000 for a qualifying counseling program this year .if TMM has $ 500,000 taxable income before considering this expense .should it elect the credit or deduct the program's cost as an ordinary business expense?
B. Would your answer change if TMM had only $ 70,000 taxable income before consideration of the expense?

Answer 2

To determine the tax treatment of the 1 million dollars, we need to look at the laws regarding the taxation of lottery winnings and capital gains. Here are the steps you can take to research and find the relevant information:

1. Consult the Internal Revenue Service (IRS) guidelines: The IRS is the official source for tax regulations in the United States. Start by visiting the IRS website (www.irs.gov) and navigate to the section that deals with tax rates for different types of income.

2. Look for information on lottery winnings: Search for specific guidelines related to the tax treatment of lottery winnings. In this case, Bruce won the lottery, so it's important to understand how lottery prizes are taxed.

3. Research capital gains tax rates: Determine the current long-term capital gains tax rate. Look for any specific requirements or conditions that might affect the classification of the 1 million dollars received from selling the remaining payments.

4. Consider the circumstances of the sale: Take into account Bruce's decision to sell the remaining payments. Investigate whether this transaction qualifies for long-term capital gains treatment or if it might be treated as ordinary income.

5. Consult tax professionals or experts: If the IRS guidelines are not clear or you need further assistance, consider reaching out to tax professionals, such as certified public accountants (CPAs) or tax lawyers who can provide expert advice based on your specific circumstances.

Remember, tax laws can be complex and may differ depending on various factors, so it's important to do thorough research and consult qualified professionals for accurate information regarding your specific situation.