FACTS: After living in Norway for some time, Theodore Odinson, age 35, moved to New Mexico in 2011 where he met and married Jane, a 30 year-old astrophysicist. For the past eleven years, Theodore worked as part of the security team with Asgard Inc., a U.S. subsidiary of Mjolnir Holding Co. Mjolnir Holding Co. suffered a significant decline in revenues worldwide due to the COVID-19 pandemic and the organization was forced to reorganize its U.S. operations, which led them to lay off a number of employees. The supervisor of the security department, Mr. Heimdall, informed Theodore that he is on the next round of layoffs. However, Asgard Inc. is willing to engage Theodore as an independent contractor for special engagements, so he will continue to work albeit as a self-employed individual. Asgard provides its employees with a qualified retirement plan as part of its benefits package, and Theodore has $325,000 vested in this plan. Over the years, Theodore has made a number of contributions to the company’s retirement plan as part of Asgard’s defined contribution plan. Theodore is concerned about protecting his retirement assets and seeks to continue saving for retirement even when he is self-employed. Mr. Heimdall also informs Theodore that he can request to withdraw the funds in his qualified retirement plan in cash or to a qualified retirement plan’s administrator. On the other hand, Jane opened a crypto wallet and invested $100,000 into cryptocurrency in January of 2021. She also spent $2,000 in ordinary and necessary business expenses–$1,000 in commissions, $500 in fees for investment counsel/consulting services, and $500 in statistical services subscriptions. Her records as of August 2022 showed that she liquidated her cryptocurrency investments and lost $75,000 that year. Jane plans to claim the loss on her and Theodore’s married filing jointly tax return for 2022.

ISSUE: What are the tax consequences of Asgard’s distribution to Theodore from the company’s retirement plan? What would you, as the taxpayer’s accountant, recommend for him and what are the federal tax implications of your recommendation? Can the Odinsons recognize a capital loss on Jane’s sale of the cryptocurrency? Can the taxpayer deduct the ordinary and necessary expenses of $2,000 on Schedule A of their 2022 income tax return?

Answer rating: 100% (QA)

a The tax consequences of Asgards distribution to Theodore from the companys retirement plan will depend on the type of distribution that Theodore rec... View the full answer