1. You are the tax consultant for a spouse in a divorce proceeding. Please discuss and compare alimony versus child support from a tax perspective. Please discuss this issue from the perspective of the payer and from the recipient.
Alimony, is an agreement between you and your ex, of how you going to pay those payments, and those payments are indeed able to write off and also are taxable income, in some cases can qualified as a deductible alimony, which is good for you, but not for your ex. In compare with child support is different because those payments are nondeductible expense for you and are tax-free for the ex. However, according to Sec. 71(c) (2), alimony payments are reduce due to a child-associated possibility, therefore are considered to be child support.
2. A tax client has the opportunity to purchase a corporate bond with a yield to maturity of 6% OR a municipal bond with a yield to maturity of 4%. They are in the 33.33% marginal tax bracket. Please advise them of the tax implications of each investment choice.
The individual will select the higher after-tax return; so, comparative yields and marginal tax rate of the investor will possible determine the choice between municipal and corporate bonds. Tax payers might consider investing in a municipal bonds instead of taxable corporate bonds, because are exempt from federal income taxes, even though is pre-tax income from corporate that it is usually higher after-tax.
3. A tax client who owns a business wishes to either purchase or lease a new Lexus. The cars' purchase price is $50,000 and she expects to drive the car about 80% for business. Please compare and contrast the tax deductions under the two scenarios and then make a recommendation.