Tax Planning for Individuals

The assignment below will assess your knowledge and understanding of individual tax planning strategies, and your ability to apply that knowledge to solve problems.

You will use CCH IntelliConnect (aka CCH Omnitax or AnswerConnect) exclusively for your tax research for this course (access provided through the Library).

Answer the following homework problems thoroughly and in complete sentences. Save your answers in a Microsoft® Word® document and submit them to the Dropbox.

  1. Ronda Mitzger is in the 35 percent federal tax bracket and the 5 percent state income tax bracket. Ronda’s state defines gross income the same way as the federal definition. Ronda can choose to have her employer pay $5,000 each year towards her child-care expenses or to receive a $7,500 increase in her salary. Which benefit should she choose? Explain your answer and cite your tax research appropriately.
  2. Explain why the Bolton method of allocating taxes and interest of a vacation home may provide significant tax savings for a taxpayer caught by the Code Sec. 280A limitations. Does the IRS approve of this allocation method?
  3. Near the end of the current tax year, Joel Chason has $120,000 AGI before accounting for a $15,000 loss from a residential real estate investment property that he is an active participant in. Joel received a large, non-taxable inheritance last month and has the opportunity to invest the amount in either a taxable bond fund that will pay $10,000 in interest in the current year or a nontaxable bond fund that will pay him $6,500 in interest in the current year. If Joel expects roughly the same results in the next several years, what advice would you give regarding which investment to make? Explain your answer and cite your tax research appropriately.
  4. Maria enrolled in her employer provided high deductible (medical insurance) health plan (HDHP) that has a $2,750 deductible that covers medical expenses (other than dental and vision). Maria’s employer contributes $200 per month to her FSA, which covers dental and vision care. Maria incurred the following medical costs during the year: $600 to her dentist, $400 for contact lenses, and $1,500 for copays and lab costs related to her doctor visits. How can Maria be reimbursed for these expenses? What advice would you give related to rolling over any amounts in the two different medical reimbursement plans? Explain your answer and cite your tax research appropriately.
  5. On April1, 2016, Itty Bitty Inc. grants Tao a nonqualified stock option to acquire 1,000 shares of the company’s stock for $12 per share. The FMV of the stock on the date of grant is $15. The option does not have a readily ascertainable FMV. On June 1, 2016, when the FMV of the stock is $18, Tao exercised the stock option. What are the tax consequences on the following?
    1. for Tao on the grant date
    2. for Itty Bitty Inc on the grant date
    3. for Tao on the exercise date
    4. for Itty Bitty Inc on the exercise date
  6. Monte’s employer maintains a profit-sharing plan for all its employees. What is the maximum deductible contribution in 2020 for each of the following situations?
    1. salary is $86,000
    2. salary is $295,000

Explain your answer and cite your tax research appropriately.

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