Compute her monthly exclusion

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Q1. Pension Income. Beth retires when she turns 65. She begins receiving a monthly pension of $300 from her employer's qualified retirement plan. While employed, Beth contributed $13,000 to the plan.

a. Beth uses the simplified method to compute her exclusion. Why?

b. Compute her monthly exclusion.

c. How much gross income does she report in the first year if she receives 12 monthly checks?

Q2. Jim and Linda are your tax clients. They were divorced two years ago, and the divorce decree stated that Jim was to make monthly payments to Linda. The court designated $300 per month as alimony and $200 per month as child support, or a total of $6,000 per year. Jim has been unemployed for much of the year and paid Linda $2,000 that he said was for child support. In addition, Jim transferred the title to a three-year-old automobile claim she has against him for the unpaid child support and alimony. Does Linda have to report any alimony and is Jim entitled to an alimony deduction? Draft a memo for the file that discusses the tax consequences for both Jim and Linda.

Reference no: EM131996495

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