The Tragic Life of Billy Bob
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The Tragic Life of Billy BobIssue 1: car accidentIn January 2017, When Billy Bob was hit by a Walmart truck, he had medical bills of $145,668 and car destroy with loss of $120,000. Considering the tax regulations, the medical expense of a US citizen below age of 65 can be deducted only if the medical expense exceeds 10% of adjusted gross income. His salary is $600,000. Suppose 10% of his adjusted gross income after deductions for AGI is smaller than medical expense, then he can deduct all his medical expense from his taxable income. Since his new car is of personal use, the loss of this capital cannot be deductible. Issue 2: lawsuit with car accidentMr. Woolworth suggests that Billy should seek reimbursement of medical bills of $145,668, compensation for the vehicle and loss of pay of $350,000, $5,000,000 as punitive damages. As for the reimbursement of medical expense, if Billy deducts his medical expense before, he has to include the reimbursement into his income and pay tax for it. If he did not deduct, he does not need to include the reimbursement in his income. The punitive damages of $5,000,000 is by no means taxable. For the compensation for the vehicle and loss of pay of $350,000, compensation for loss of pay is excluded from gross income. Since Billy was unable to work for three weeks because of the injury, the estimated income for the three weeks should be approximately $34,615 (=600,000*3/52). The rest of $315,385 should be compensation for vehicle loss. Since compensation for loss of vehicle is similar to sales, and the compensation amount is larger than the price of vehicle itself, so Billy actually has to include gains of $195,385 (=$315,385-$120,000) in his income. Besides, the case mentions that Billy wants to make a claim for emotional stress on account of his lack of nerve to drive anymore, but this compensation for emotional stress – if it is realized – will also be included in income and will be taxable.
Issue 3: TV showBilly received a prize of $100,000 in cash and a Mercedes E Class valued at $65,000. In this case, Billy needs to include FMV of prizes in his income, which is total amount of $165,000.Issue 4: dismissal from jobWhen Billy was fired by the company. The company gave him a check for $500,000 for his esteemed service to the company. Under this circumstance, the check should be included in his income because it did not meet the requirement of tangible property in order to be excluded.Issue 5: unemployment compensationIn the Ides of March, Billy filed for unemployment compensation of a paltry allowable $425 per week. In recent years IRS decided to make unemployment compensation taxable, so $425 per week will be included in Billy’s income.Issue 6: lawsuit with TV showRegarding lawsuit with TV show resulting in loss of job, Mr. Woolworth suggests that they should claim defamation and sue for emotional distress in the amount of $1,000,000. This compensation is on account of emotional distress other than physical injuries, so it is taxable.