Description
Suppose you are an Enrolled Agent with a client that come to you for help with figuring out their taxable income. Based on the data below, you must determine the federal taxable income for the client for tax year 2020.
Client:John Norris
He divorced Mrs. Jane Norris March 1, 2018. The divorce decree required Mr. Norris to make the following payments:
Title to the primary residence was transferred to Jane. The fair market value of the home is $225,000 and the basis is $175,000.
John must pay $1,600 per month mortgage payments on the house, which has 15 years remaining. The payments will end at Jane’s death.
John must pay $1,000 per month for 10 years in support payments to Jane, of which $400 per month is child support.
Jane insisted that the children attend private schools. In 2020, John paid $1,800 in tuition for private high school.
John paid his lawyer $4,000 to represent him in the divorce. The children reside with Jane, and Jane has agreed to allow John to claim one child as a dependency exemption. This agreement is in writing and signed by Jane prior to December 31, 2018.
John owns an apartment complex. Each new tenant pays $850 for a security deposit, which is refundable upon vacating the apartment. In 2020, John collected $2,550 in security deposits and $16,000 in rental income.
John won first prize in a raffle in 2020. The prize is a new car with a window price of $22,000. John discovered that the car price is $20,000 when he checked around at multiple dealerships.
John makes $75,000 a year for his annual salary plus a bonus of $5,000 that would be received January 2021. John has itemized deductions of $20,500.
DIRECTIONS:COMPILE YOUR ANSWER ON AN EXCEL SPREADSHEET – THE SPREADSHEET MUST SHOW INCOME ABOVE THE LINE AND BELOW THE LINE DEDUCTIONS TO ARRIVE AT TAXABLE INCOME.
