Write a memo and a client letter
1. Matt & Lori were divorced in 2016. Pursuant to the divorce decree Matt receives $10,000 in alimony each month. Use an available tax service to determine if the alimony Matt receives is taxable. Would your answer change if Matt and Lori still live together?
2. Benjamin, a self-employed bookkeeper, takes a CPA review course ($1500 cost) to help prepare for the CPA exam. Use an available tax research service to determine if Benjamin may deduct the cost of the CPA exam course.
3. Janice Traylor is single. She has an 18-year-old son named Marty. Marty is Janice’s only child. Marty has lived with Janice his entire life. However, Marty recently joined the Marines and was sent on a special assignment to Australia. During the current year, Marty spent nine months in Australia. Marty was extremely homesick while in Australia, since he had never lived away from home. However, Marty knew this assignment was only temporary and he couldn’t wait to come home and find this room just the way he left it. Janice has always filed as head of household, and Marty has always been considered a qualifying child (and he continues to meet all of the tests with the possible exception of the residence test due to his stay in Australia). However, this year Janice is unsure whether she qualifies as head of household due to Marty’s nine-month absence during the year. Janice has come to you for advice on whether she qualifies for head of household filing status. What do you tell her?
4. Karyn loaned $20,000 to her co-worker to begin a new business several years ago. If her co-worker declares bankruptcy on June 22 of the current year, is Karyn allowed to deduct the bad debt loss this year? If she can deduct the loss, what is the character of the loss?
5. Ralph operates a business that acts as a sales representative for firms that produce and sell precious metals to electronics manufacturers. Ralph contacts manufacturers and convinces them to sign contracts for the delivery of metals. Ralph’s company earns a commission on the sales. This year, Ralph contacted a jeweler to engrave small lapel buttons for each of his clients. Ralph paid $20 each for the lapel buttons and the jeweler charged Ralph an additional $7 for engraving. The electronics manufacturers, however, prohibits their employees from accepting gifts related to sales contracts. Can Ralph deduct the cost of the lapel buttons as business gifts?
6. Terry Hutchison worked as a self-employed lawyer until two years ago when he retired. He used the cash method of accounting in his business for tax purposes. Five years ago, Terry represented his client ABC Corporation in an antitrust lawsuit against XYZ Corporation. During that year, Terry paid self-employment taxes on all of his income. ABC won the lawsuit but Terry and ABC could not agree on the amount of his earnings. Finally this year, the issues got resolved and ABC paid Terry $90,000 for the services he provided five years ago. Terry plans to include the payment in his gross income but because he spends most of his time playing golf and absolutely no time working on legal matters, he does not intend to pay self-employment taxes on the income. Is Terry subject to self-employment taxes on this income?
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