Tax Engineering Economic Analysis Questions

Tax Engineering Economic Analysis Questions

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Your clients, Adam and Amy Accrual, have a 21-year-old daughter named April. April is single and is a full-time student studying for her bachelor’s degree in accounting at California Poly Academy (CPA) in Pismo Beach, California, where she lives with her roommates year-round. Last year, April worked at a local bar and restaurant four nights a week and made $18,000, which she used for tuition, fees, books, and living expenses. Her parents help April by sending her $300 each month to help with her expenses at college.

This is all of the support given to April by her parents. When preparing Adam and Amy’s tax return, you note that they claim April as a dependent for tax purposes. Adam is insistent that they can claim April because of the $300 per month support and the fact that they “have claimed her since she was born.” He will not let you take April off his return as a dependent. Would you sign the Paid Preparer’s declaration (see example above) on this return? Why or why not?

For the last 10 years, you prepared the joint tax returns for Dominic (husband; age 40) and Dulce (wife; age 35) Divorcee. In 2018, they got a divorce and remained as your separate tax clients. Under the dissolution decree, Dominic has to pay Dulce $2,500 per month alimony, which he does for the current year.

You have completed Dominic’s tax return for the current year and you deducted the required alimony payments to Dulce on Dominic’s Form 1040. Dulce came in to have you prepare her tax return and refused to report her alimony received as income. She stated, “I am not going to pay tax on the $30,000 from Dominic.” She views the payments as “a gift for putting up with him for all those years of marriage.” Dulce will not budge on excluding this alimony from income. Would you sign the Paid Preparer’s declaration (see example above) on this return? Why or why not?

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