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Category: Tax
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Experience:  over 40 years experience in tax matters
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what are irs and accounting rules for investment in another

Resolved Question:

what are irs and accounting rules for investment in another persons lawsuit?
Submitted: 6 years ago.
Category: Tax
Expert:  CGCPA replied 6 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.


Please provide additional information as to what has transpired here so I can properly advise you. What is the nature of your investment, what if any do you stand to gain?

Customer: replied 6 years ago.
I expect to be repayed my expenses and a bonus depending on settlement.The plaintiff needs financial support which I will supply through my sole prop. business. Do I write off expenses in current year or wait till settlement,if any of course.? He is suing for breach of contract.
Expert:  CGCPA replied 6 years ago.
I would treat this as you have identified it. It is an investment and should be recorded as such in the balance sheet section of your business. When it is resolved you will be able to treat it as a capital gain/loss activity using Schedule D of your tax returns. To do otherwise will just not work. There are not likely to be many of the expenditures that will truly qualify as deductions immediately and, since capital gains rates are lower than the tax rates on ordinary income you should benefit if this works out for you.
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