Jims Tax Situation 2021

Jim is a savvy businessman. He is the sole proprietor of a manufacturing company and likes to speculate on the stock market. Jim saw that GameStop Corp. stock was going through the roof because of the pump supplied by the Re dd it community. Since he believed the short squeeze was still to come, he purchased GME at $315 per share. Unfortunately for Jim, the short squeeze he was hoping for never materialized. One year and one day later, Jim sold his 1,250 shares of GME at 15 per share. The sale generated a significant long-term capital loss.

In the same year, Jim exchanged an old machine used in his trade or business for a new machine, plus he also received $50,000 cash. Jim purchased the old machine for $345,000 and deducted $45,000 of depreciation on the old machine. The new machine has a fair market value of $450,000.

In addition to the above transactions, Jim had $750,000 of income flowing through on his Schedule C from his manufacturing business. Jim says, well, I lost bight time on my GME speculation, but I can just offset that with my gains from the business and the exchange of the machine, right?

Please tell Jim the tax consequences as the result of the three transactions above. Because Jim is a fairly savvy businessman, please use the format of the memo I have in Blackboard to communicate with him. Feel free to use any tax lingo because he is familiar with it.

write a memo to jim i have attached an example of how it should look like thank you

MEMORANDUM To: Joe Smith From: Tom Norton Date: January 21, 2021 Re: Deductibility of employee meals Conclusion: If you offer dinner to over one half of your employees for the convenience of your company, the company will be allowed to deduct the full amount of the meal expense. Issues: Under Internal Revenue Code Section 274(n)(1), most expenditures relating to meals and entertainment are subject to a 50% deductibility limitation. Structured correctly, you may be able to receive full deductibility of your employee meals expenses. Additional issues are whether the benefit should be included in the employee's compensation and whether the meal is furnished for the convenience of the employer. Authorities: Primary IRC $274(n) - Only 50 percent of meal and entertainment expenses allowed as deduction IRC 6119 - Meals or lodging furnished for the convenience of the employer Secondary Checkpoint RIA Federal Tax Handbook Section 1556 RIA Federal Tax Coordinator H-1751 Exclusion for meals and lodging furnished to employees RIA Federal Tax Coordinator H-1754 what is the "convenience of the employer." RIA Federal Tax Coordinator H-1767 Business Premises of the Employer Defined Analysis: Under Internal Revenue Code Section 274(n)(1), most expenditures relating to meals and entertainment are subject to a 50% deductibility limitation. However, the following IRC Section 274(n)(2) provides a list of exceptions to this rule. One of these exceptions is if the expense is excludable from the gross income of the employee due to de minimis fringe benefits. In order for the expense to be excludable from gross income, there has to be a noncompensatory business reason for furnishing the meal. You believe that your employees will work longer hours and therefore generate more revenue for the company, this could establish the noncompensatory business reason. The other requirement for the expense to be excludable from gross income is that under IRC $119(b)(4), the employer needs to provide meals on its business premises to over half of its employees. I suggest that you confirm that your salaried employees make up over half of your employee base in order to qualify for this requirement