The fair market value of the value of the goods and services exchanged must be included in the gross income of both parties.
If a taxpayer incurs legal expenses in connection with a business transaction or primarily to preserve an existing business, its reputation, or its goodwill, then the legal expenses are generally deductible. The Internal Revenue Service will use the same tests for deductibility as for other business deductions, which precludes a current deduction for a legal expense incurred in the acquisition of goodwill or any other capital asset. In order for legal fees to be deductible, there does not have to be litigation, and the success of the taxpayer does not affect the deductibility of legal expenses.
It is not unusual for a taxpayer to pay more for a business than the fair market value of its tangible assets would seem to command. So why does a taxpayer pay more? The answer is that he or she has actually bought more than hard assets.
A corporation that receives dividends from a taxable domestic corporation may be entitled to a special deduction from gross income. The recipient corporation may deduct, within certain limits, 70 percent of the dividend received if the corporation receiving the dividend owns less than 20 percent of the corporation distributing the dividend. The amount of the deduction is increased to 80 percent of dividends received if 20 percent of the distributing corporation is owned by the recipient corporation.
In an attempt to deal with the high cost of medical care in the United States, Congress has passed a tax law allowing certain taxpayers to set up a health savings account (HSA), a tax-exempt trust or custodial account for the payment or reimbursement of medical expenses.
