Each student will prepare four separate tax return calculations (projections) for Rebecca’s household depending upon the alternatives each student isolates (e.g., MFJ with Henry, Head of Household).
Items to consider in completing this project:
- Work on this project MUST BE INDIVIDUAL. Do not discuss this project with anyone
else. Over the years a number of students have collaborated on this project and have
been ejected from the course. Each student is to read and interpret the financial
information obtained from Rebecca and prepare projected 2020 income tax return
- Each student will prepare four separate tax return calculations (projections) for
Rebecca’s household depending upon the alternatives each student isolates (e.g., MFJ
with Henry, Head of Household).
- Don’t prepare tax projections/returns for Michael or Henry if the individual is not a
member of Rebecca’s household in a particular scenario. Deborah is always in
- Make reasonable assumptions if the information is not clear (for example, Rebecca’s
age, value of boat storage). Include a separate, typed statement as the last page of the
letter to Rebecca (this does not count as part of the five page limit) indicating each
assumption and the rationale therefore. It is highly unlikely that several students
working independently each will arrive at the same set of assumptions. The message
here is that this is an individual project. Your assumptions must be reasonable and in
good faith – one year a student turned in a project with a note that Rebecca contested
the constitutionality of the federal income tax and was not filing a return (guess the
- Each student is to compose and submit a letter to Rebecca detailing your suggestions
regarding her tax position and recommendations on her marital status from a tax point
of view (this letter is Writing Assignment #3). This client letter should be typed (in a
Word file – don’t use Google docs) in a font no smaller than 10-point type and not to
exceed five typewritten, single sided letter sized pages (note, nothing past the five
pages will not be graded, a cover sheet should not be prepared). Anything more is too
much and anything less than four pages and you probably haven’t addressed as many
issues as you should. The client letter is your Writing Assignment #3 (this is worth 100
points). A quality letter will address many issues including: total tax paid under each
alternative, disposable income (income after payment of taxes for each member of the
household), average and marginal tax rates for each alternative, qualitative (lifestyle)
aspects of each alternative, recommendations to take advantage of maximum tax
deductions (perhaps by taking a different course of action), suggested tax saving
devices, and a discussion of tax attributes/issues of each alternative (there are a large
number of tax issues ranging from kiddie tax to bribes). Your ability to spot tax savings
opportunities may be the most important part of your client letter and will be weighted
the highest. Make sure that your discussion of each alternative includes your
observations on conduct that could be changed to provide better tax results. Your letter
should include a minimum of four graphics comparing disposable income (after tax
income), marginal tax rates for each filing status, average tax rate for each filing status
and at least one other graphic relating to her tax situation (pie charts are not typically
good comparison presentations). You should not just be a data entry tax person,
give Rebecca ideas about how to arrange her affairs so as to best take advantage of
the tax laws. Don’t get silly – she has no need to consider buying a skybox at
Buccaneer games, a boat to cruise the bay and entertain clients or a private jet. A
complete letter will creatively use charts/graphs to illustrate your suggestions/findings.
Spelling and typographical errors will be heavily penalized in this letter. One student
several years ago had 27 spelling errors in a three-page letter and received a negative
170 points grade (the student would have been much better off not turning the project
in). Please proof your work. A visit to the Writing Center is encouraged but make your
appointments early – they book up fast. A Rubric to guide you is posted at the end of
- Students may use either the Taxslayer software (from the IRS) or some other software
obtained independently. The Taxslayer software is very good however an update is due
in November which may render the software unavailable at a critical time. It is best to
get the tax returns done before the end of the first week of November and then begin
the writing process. Students electing to use Taxslayer after the end of the first week of
November take the risk that the software may not be available at critical times. The
Taxslayer software is easy to use but subject to the whims of government and may
become unavailable before the project due date or the software may change
- The tax returns are Writing Assignment #4. One of the four tax return projections will be
graded. Only one of the projections will be graded (although the differences between
the returns may be evaluated) (instructor selection) for completeness and accuracy (this
tax return projection is worth 60 points).
- The grading process has typically taken upward of 100 hours. This year that number
may be longer if current experience is any indication. There is no way to estimate the
grading time other than to note that for the first time in 37 years it is unlikely that the
projects will all be graded by the Monday after Thanksgiving.
- You must work independently of your classmates; each student must make many
assumptions in preparing this analysis. Two or more students submitting substantially
similar projects will be subject to disciplinary action, including but not limited to dismissal
from and failure of this course. Students have, in the past, made submissions with
identical misspellings, identical calculations, identical assumptions and substantially
identical letters. Please take note – this project has been in use for thirty+ years but with
different facts each year so using a prior student’s submission is also considered
cheating. Most recently, two students submitted assignments with both their names (in
various places) in different submissions. One student claimed that a roommate had
stolen their work but both students were dismissed with a grade of F in the course.
Please take precautions to protect your “client’s” confidential information.
- Rebecca’s last name is your last name (as used by the University’s class role system).
If your name is Sally U.V. Smith-Jones then Rebecca’s name is Rebecca U. Smith for
the purposes of this assignment. Rebecca’s middle initial is your middle initial. If you
have multiple middle initials then use the first of your middle initials. Rebecca’s last
name is your last name if your last name is Smith then your last name would be either
TONISMITH or VICTORIASMITH.
- Appearance counts. Make your letter look good with embedded graphics. This is a
letter from a professional tax firm to a paying client.
- Your client, Rebecca, will answer questions (as asked in person of your instructor) as
any client would. Rebecca plans to be backpacking with her scout troop in the
Withlacoochee National Forest (no data or cell coverage) Wednesday Evening through
Sunday Evening the weekend before the project is due so plan accordingly.
- Where a number references “L3” this refers to the last three digits of your UT student ID
number. For example, if your UT student ID number is 1234567 then the last three
digits are 567. For example, Rebecca’s 2019 refund was applied to her 2020 tax
obligations and the number would be $567 using this example.
- Client bill. As the last pages of Writing Assignment 3 (just before the Integrity
confirmation) students will include a bill to their client, Rebecca. Clients like to see what
their professionals have worked on and how long it took. Your bill should be itemized
and (much like your weekly time sheet) should break down what was done and when.
It was 11:40 a.m. on the morning of October 12, 2020 and across the desk from me stood a tall
woman sobbing quietly into a lace handkerchief. Brushing the remains of my lunch from the chair, I
offered her a seat and a Coke Zero Sugar.
“Oh, Mr. Platau,” she blubbered, “I desperately need some advice.”
“Compose yourself for a moment. Here, have an Oreo,” I soothed. “Tell me what I can do to help.”
Catching her breath, Rebecca began her story. “In 2013 I left my husband, Michael, in the drunk
tank of the Yeehaw Junction City Jail for the final time. I brought my then 5-year-old daughter,
Deborah, to Tampa. Since then, I have established myself as a remarkably successful,
independent shoe repair sales representative for the Palma Ceia Shoe Supply and Repair
Company and now, manufacturer of therapeutic footwear.”
“Whatever, then, could be the problem?” I asked.
“I’m so confused,” Rebecca gasped. “For these past few years, I’ve been MARRIED FILING
SEPARATELY (not itemizing). When I was struggling with poverty, it didn’t seem to matter, but
now that I’ve achieved a modicum of professional success, I have a nagging feeling that I should
obtain a divorce and become a HEAD OF HOUSEHOLD.”
“And…?” I prompted, offering her a bag of Doritos and a sip of my soda.
“Well…Mr. Platau,” she hesitated, “I’ve also been toying with the idea of returning to Yeehaw
Junction, reforming that miserable sot and once again being MARRIED FILING JOINTLY?”
“I know this is very difficult for you, but unless you level with me completely, Rebecca, we won’t be
able to explore all your tax options,” I insisted, spraying her with chip crumbs in my excitement.
“However did you guess?” she blushed. “It’s true. I’ve been stepping out with Henry, the auditor, in
his Smart Car and am considering an alternative MARRIED FILING JOINTLY, this time with a
salaried man. Whatever am I to do?”
“Let’s begin by building a financial profile which will aid my assistant in exploring your problem.
What would you estimate is your annual income?”
“This year, I anticipate that it will approach $200,000,” she said.
“Call me Steve,” I replied.
Data collected from the initial interview is presented on the following pages
REBECCA’S FINANCIAL PROFILE
Dates given are for 2020 computations.
DIVIDENDS EXPECTED, Full Year
Emera (Dividend Re-invested) 210
Fidelity Investment Fund (capital gain) 1,810
Fidelity Contrarian Fund (in Deborah’s account) (cap. gain, estimate) 4,000
Bank of America Money Market Account $ 111
Hancock Whitney Bank Checking Account 5
HancockWhitney Bank CD 380
Washington Federal (In Deborah’s name, controlled by Rebecca) 40
Tampa Water Authority Bonds 460
OTHER ITEMS (all in 2020)
Sale of 2014 vehicle (Ford Focus)
(fully depreciated) (original cost $11,175) $ 330
Sale of 10 shares of Amazon
Purchased 10/01/04 for $5,000 31,000
Sale of 100 shares of IBM
Purchased 02/01/99 for $16,000 18,900
Sale of 500 GE shares inherited from her deceased
Uncle on 3/15/2006, FMV date of Uncle’s death $45/share 3,100
Sale of 100 shares of Alcoa
Purchased 01/15/06, $2,300 1,200
Sale of 100 shares of Barnes and Noble
Purchased 07/15/02, $5,500 80
Estimated Tax Payments
Rebecca filed forms 1040-ES on April, June and September 15th this year remitting $11,500 with
each filing. To date she has paid $34,500 in estimated tax payments this year and had a small
federal refund from 2019 which she estimates at “L3” (use the last three digits of your UT Student ID)
Rebecca elected to have the refund applied to 2020 taxes when she filed her 2019 return.
Rebecca paid one of Deborah’s aunts $3,500 cash to watch over Deborah while Rebecca was out of
town on business trips.
Rebecca estimates that medical/dental expenses will be $4,230 per member of her household this
year of which $3,860 will be health insurance premiums for a high deductible plan. Rebecca will
contribute $2,400 to a Health Savings Account at Palma Ceia Shoe this year. Deborah got braces in
June and Rebecca paid $4,800 for the treatment (which is in addition to the other health expenses).
In August, 2014 Rebecca lent her friend Louise $1,500 so that Louise could visit an ailing relative in
Des Moines. Louise signed a promissory note (no interest) and has never paid Rebecca back. In
March, 2020 Louise perished in a boating accident and her estate declared bankruptcy a few months
later. Rebecca received nothing.
Rebecca has considered moving from her rented three-bedroom Bayshore apartment but has yet to
take the plunge into personal home ownership. Her monthly rent is $2,720 for the 1,360 square foot
apartment, electric runs $240/month on average, water is included in the rent. She makes use of
one bedroom exclusively for her work. Rebecca subscribes to Frontier FiOS service paying
$185/month for a package including internet, television and telephone service. She needs the
internet for her work and “always has the City of Tampa cable channel on to monitor for shoe repair
opportunities for the city government”. She tells you she has always deducted the entire Frontier bill
as a business expense.
In June, 2020 Rebecca acquired a 6,600-pound behemoth Chevy Suburban SUV at a cost of
$60,500 plus sales tax. She sold her aging Ford Focus to a UT student. The SUV is driven,
according to her carefully kept records, 5,L3 miles of its 9,500 miles in 2020 in connection with her
work (she does keep a daily log of her visits to clients and prospects that confirm her business use).
Additionally, she drives a load of girl scouts (including Deborah) to Disney World once a month, took
her aging aunt to Jacksonville for hip surgery, delivers meals once a month for the Meals-on-Wheels
program, and helps her church collect aluminum cans by driving a full load to the collection center in
Wiaumama each week. Rebecca wants the maximum deduction possible for her vehicle.
On July 1, 2019 Rebecca purchased a 1/2 share in an Indian Rocks Beach condo with her friend
Sally Seashell for use as a second home. They plan to use the condo on alternating weekends for
personal use. The unit cost $228,000. Each made a cash down payment of $24,000, the balance
was financed by Foundering Federal Bank (the owner) at 4% interest, 2 points, 30-year amortization
with a five-year balloon payment due on the balance. The total annual property taxes for 2020 are
$5,160 which will be paid in full in November in cash by Rebecca and Sally when the tax bill arrives,
the condo fee is $280/mo. which includes fire insurance and water. The happy weekenders closed
the purchase July 1, 2019, they split all of the costs “down the middle” (so Rebecca and Sally each
pay half of everything).
In 2010, Deborah’s great grandmother died leaving $5,000 to Deborah. That money was invested in
a Fidelity Mutual Fund and has grown to over $19,000 in value. Deborah’s dividends come in the
form of capital gain distributions made by the Fund (all reinvested) which amounted to $4,000 in
2019 and are likely to be about the same in 2020. She also has a sizable savings account that paid
interest held in trust for Deborah (through September the interest on the savings account at
HancockWhitney Bank for Deborah was $285). Deborah does not want to file her own tax return but
may be subject to the Kiddie tax so Deborah’s tax due (if any) should be included with Rebecca’s
income tax payable in every filing status if it is allowable to include Deborah in Rebecca’s return.
Rebecca babysat for two different couples in the building, this year. Both couples paid her in cash.
Rebecca’s total babysitting income was $660 in 2020.
Deborah participates in a multitude of organized activities after school. She is involved in volleyball,
swimming and plays the tuba in the school band. Last year these various activities along with the
scouts cost Rebecca about $8,000. In August Deborah began her studies at Tampa Preparatory
School at a cost of $23,835 plus books. Rebecca is considering furthering her education, she has
always been good with numbers and has thought about getting a college degree in accounting.
Deborah showed off her independent side this summer. On an adventure with some of her marching
band friends Deborah borrowed mom’s new Suburban one evening and “customized” the vehicle by
adding a mailbox as a hood ornament. When local law enforcement arrived on the scene, they
determined that about $5,000 damage had been done to the Suburban and a similar amount to the
custom designed mailbox in front of Bayshore’s Ritz Towers (the mailbox was embedded in the front
end of the Suburban). In an effort to sweep this little incident under the rug Rebecca paid the police
officer $1,000 cash to “look the other way this time”. Rebecca paid a contractor $3,200 in cash to fix
the mailbox and a similar amount (also in cash) to “Sammy’s” body shop to repair the Suburban.
Deborah’s phone was taken away for three days and she had to eat the school’s catered Panera
Bread lunch (with no avocado) for a week as punishment.
In the spring of 2019 Rebecca developed plantar fasciitis, a painful condition brought on by her
heavy foot use. In searching for a solution Rebecca stumbled upon an ancient blueprint for
therapeutic sandals used by the Seminole tribe. Rebecca visited with tribal leaders in early summer
2019 and struck a deal to license the blueprint agreeing to pay the tribe 50 cents for each pair of
sandals sold. The license agreement has a duration of 50 years. Rebecca then formed Feel Good
Feet, LLC – a single member LLC owned by Rebecca. She capitalized the LLC with $25,000 in cash
on August 1, 2019.
On August 11, 2019 Feel Good Feet, LLC signed a contract to acquire 2.5 acres of real property in
the “301 Industrial Park” located just south of I-4 near the Florida State Fairgrounds. A few days later
the LLC signed an agreement to have a contractor erect a 5,000 square foot metal building (with a
brick front facing) on the site. The contractor will also complete a 2,200 square foot parking lot and
landscaping. The land was $150,000 and the completed building was $75,000 with the drainage,
landscaping and parking costing $10,000. Equipment for fabricating plastics, packaging and
materials handling equipment cost $80,000. Office computers were $8,000 and office furniture was
$12,000. The total loan (including $65,000 of operating capital cash) was $400,000 advanced by the
Bank of Plant City at 6% interest, interest only payments on a five year “balloon” note. Rebecca
personally guaranteed loan repayment when the entire transaction closed on January 2, 2020. The
building was completed, equipment installed and the operation began its initial production of sandals
on April 15, 2020.
Rebecca plans to open her own retirement account this year. She overheard some CPAs partying at
the Palma Ceia Country Club Cabbage Festival Ball discussing the merits of an SEP-IRA with
unlimited contributions for self-employed individuals. She thinks she may qualify for an SEP-IRA
which would allow her to sock away at least $12,000 in such an account. She will follow your advice
on how to invest some money for her sunset years.
Feel Good Feet, LLC:
(The results of Feel Good Feet, LLC should be included in Rebecca’s tax return using a Schedule C
to report the single member LLC’s results)
Rebecca started this business with the support of her boss at Palma Ceia Shoe Repair who thought
it “might be a fun sideline”. The business enlisted the endorsement of players from local pro sports
teams touting the therapeutic qualities of the footwear. Many of the workers at the local casino have
supported the line of sandals which are sold exclusively online and are fabricated when ordered from
injection molds at the local plant. This limits inventory to raw materials but makes overtime an issue
since production only takes place when orders come in. The sandals currently come in a single style
and sell online for $129/pair. The business uses the cash method. The QuickBooks accounting
system revealed the following for 2020. Rebecca did not take any salary or benefits from the LLC.
Rebecca is confident that 2021 will bring success to the business, sales have increased every month
since the business launched. Although the business started on its own website it recently came to
agreements to sell on Amazon, Walmart.com and Etsy.
Sales Revenue $224,718
Interest Expense 24,000
Payroll Taxes/Unemployment/Comp. 11,000
Legal Fees to Set up the LLC 2,000
Rebecca counts on you to compute cost recovery for the enterprise (Rebecca does not want to take
bonus or §179 cost recovery to avoid showing a loss to keep her banker happy) and find her the
optimal tax treatment for her QBI deduction and overall tax liability now and in the future.
On February 3, 2011, Rebecca purchased a condominium apartment which she leases
to her mother and grandmother in Seattle. She rents this to them at the local fair market
value, which is $1,750 per month.
The apartment cost Rebecca $165,000. For the down payment she borrowed $20,000
(a second mortgage) from her mother at 9%, she makes monthly interest-only payments
to her mother on the $20,000 sum. The second mortgage is due in a balloon payment
in 2041 (if mom lives that long). She also obtained a 30-year amortizing, 6.5% first
mortgage from a local bank paying 2 points (interest payment at loan origination) for the
first mortgage loan on the remaining $145,000 of the purchase price.
For depreciation purposes, the tax appraiser suggested that 20% of the value should be
apportioned to the land, with 80% to the apartment. Rebecca used the MACRS general
Rebecca has compiled a list of the year’s cash payments associated with this
- Mortgage interest payments …………….. $ 10,009
- Condominium association fees……………. 1,440
- Property taxes………………………… 3,800
- Insurance (per month)………………….. 55
- Annual Parking garage fee……………….. 284
- Plane fare at Thanksgiving to check on
tenants and the condition of the property
(1st class on Alaska)…………………….. 945
- Repairs to appliances………………….. 295
- Hotel bill for stay at Hyatt Regency
while in Seattle…………………………….. 573
- Meals while in WA @ Federal per diem 296
Rebecca enjoys her morning rowing on the Hillsborough River. She arrives at
sunup at the UT boat ramp where she stores her rig. Most mornings she
completes at least an hour on the water. As a member of the Minaret Society,
she makes an annual contribution to UT’s Faculty of Accounting in support of the
VITA Program ($2,500) and her boat storage fees are waived. The University
charges non-contributors a fair market rate for boat storage.
Deborah has struggled with her studies and a tutor at the local Kumon Center
after school at a cost of $80/week (most school weeks) has provided helpful
guidance which also doubles as after-school care for Deborah. Deborah also
participated in the UT Mathletics summer camp during the year at a total cost of
$1,500 for a week of studies along with room and board in beautiful Austin Hall.
Rebecca has been taking golf lessons at Top Golf. Her boss suggested that golf
might be a good business entertainment sport and be a good “ground floor”
opportunity to promote repair of golf shoes. She spent $1,440 on lessons and $810
on clubs and shoes. She is a candidate for a junior membership at the local country
club. If she is accepted, the non-refundable initiation fee is $35,000 – she would use
the club only for business activities – monthly dues are $550.
Rebecca is involved in several charities in support of the community. In 2020 she
made contributions to the Salvation Army of several baskets of clothing which she
values at $350 (thrift store value) and she made cash contributions to the United
Way to support the VITA program at the University of Tampa in the sum total of
$1,000. UT recently offered Rebecca a “deal” on her Minaret society commitment
whereby the school would be willing to make her a life member in the Society in
exchange for a one-time $15,000 contribution. She wants to support UT but is not
sure if a life commitment is the right choice this year. After a luncheon catered by
the Ultimate Dining folks Rebecca is seriously considering the lifetime option, let her
know if this is the right year for her to make the contribution.
In June, an overflowed bathtub in the apartment above her caused the bathroom
ceiling to cave in over Rebecca’s Bayshore apartment. Rebecca estimates that the
replacement cost of the linens, her new Brooks Brothers business suits and personal
items lost in the deluge totaled to $20,100 (her entire cosmetic stock was ruined and
Deborah’s retainer was lost in the mess). So that Rebecca could keep up her work,
she had to move out to a hotel for two weeks while the repairs were made so she
made the best of it and took the “spa package” at the Marriott Waterside for the two
weeks and spent $2,800 plus parking and meals for the stay. Deborah spent the
weeks at the home of one of her school friends. Rebecca does not maintain any
personal property renter’s insurance at her apartment. She is still arguing with the
landlord and tenant above her over reimbursement for the temporary lodging
expenses and the cost of her possessions and has not been reimbursed to date.
Rebecca knows the law and is certain that the upstairs neighbors must pay all her
damages. Rebecca may need to call in the law firm of Dewey, Cheatem and Howe
to enforce her rights; Rebecca is confident she will ultimately “collect for all of it”.
Last weekend Rebecca, Deborah and Henry toured homes in the Bayshore Beautiful
and Seminole Heights areas of Tampa. With the changes in interest rates lately,
Rebecca believes that the time may have come for her to add to her housing stock
and purchase a primary residence. Her favorite home in Seminole Heights could be
acquired for $310,000 but would require nearly $200,000 in renovations. The home
in Bayshore Beautiful would come in at just under $800,000 but would need “some
work” likely about $50,000 to bring the kitchen up to her standards. Since Rebecca
has nearly $150,000 in savings, she believes she could acquire either home with a
sufficient down payment. In any event, if she closes on a purchase by year end,
each lender she has talked with would require “two points “ of prepaid loan interest
as a condition of making a new mortgage loan.
Palma Ceia Shoe
Rebecca’s spectacular rise as an “outside salesperson” in the Palma Ceia Shoe Company and
Repair organization is reflected in her sales reports. For 2020 she expects to do a little better
than repeat on her 2019 performance when she earned $202,000 in commissions.
The company also issues her a check for $3,500 each month. This is in addition to her
commission and is intended to “cover her expenses”. Rebecca’s employer does not provide
her with a desk at the office since the boss believes that a salesperson “should be out selling.”
All of her administrative work is done at her residence in the bedroom she uses “just for
Unlike the shambles in which I had found Rebecca’s personal data, her business files were
lovely. Rebecca understands the need for adequate documentation and has complete records
for all of these projected expenses. Perhaps her boss’ penchant for a tidy desk keeps
Rebecca on her toes. Perhaps it is her part time secretary furnished by the Addeco Agency.
Rebecca pays the agency a flat fee for the secretary and “lets them handle the paperwork”.
Travel and Lodging to Las Vegas Shoe Convention $5,000
Political contribution to election
campaign of pro-foot patrol city councilwoman 700
Meals, (shoe repair discussed at every meal (all in Tampa) 7,800
Speeding tickets on business trips on freeway 750
Administrative Assistant payment to Addeco Agency 18,200
Bribes to city councilwoman to obtain
shoe account for police foot patrol 1,100
Insurance for office (per month) 125
Legal fees for defense against bribery indictment 4,500
Federal Express (per month) 50
Professional dues 875
Printing, stationery 300
AT&T Cellular Phone (per month, Deborah included) 130
Gifts for key customers, $150 each 1,650
Car – insurance, oil and gas used for business 2,530
Purchase of iPhone 12 (Rebecca, free one for Deborah) 1,070
Palma Ceia Shoe Repair will pay and withhold the proper amount of FICA (social security and
medicare taxes). The company does not withhold federal income tax.
Also, as a part of her fringe benefits, the company maintains a group term life insurance policy
on each employee equal to $125,000, with the spouse or designated dependent as
beneficiary. The cost to the employer of this policy is $10 per $1,000 of benefits. Palma Ceia
Shoe Repair does not provide either health insurance or retirement plan benefits.
If Rebecca moves to Yehaw Junction she will need to relocate her home and office. The cost