Mary Contrary, Age 42, Is A Single Mom Caring For Two Childr ✓ Solved

Mary Contrary Age 42 Is A Single Mom Caring For Two Children Peter

Mary Contrary, age 42, is a single mom caring for two children – Peter, age 15, and Muffett, age 12. Mary is a full-time employee of the Garden Grow Company and works as a lead botanist. Part 1: Mary participates in Garden Grow’s dependent care assistance plan. In 2017, Mary incurred the following dependent care expenses: • $2,500 for a part-time housekeeper • $1,500 for Peter’s private therapy (Peter is mentally incapacitated due to a tragic accident involving a spider bite) • $1,000 for Muffett’s after school program • $575 for Muffett’s summer day camp Which, if any, of the above expenses are allowable as non-taxable? Please write a memo answering this question, citing appropriate authority. An IRAC-style essay is appropriate for this assignment. Part 2: In February 2017, Mary relocated from Los Angeles, CA to Las Vegas, NV, to manage the new branch Garden Grow opened that year. She incurred the following expenses: • $275,000 for the purchase of a house • $5,000 for selling her Los Angeles home and finding a home in Las Vegas • $500 for packing and moving her household goods. • $175 for moving-related travel between Los Angeles and Las Vegas. Garden Grow reimbursed her but did not exclude the reimbursements from her income Which, if any, of the above expenses are deductible? Why?

Sample Paper For Above instruction

Part 1: Taxability of Dependent Care Expenses

Mary Contrary’s participation in her employer’s dependent care assistance plan provides a context for determining which expenses are non-taxable under the Internal Revenue Code (IRC). According to IRC §129, employer-provided dependent care assistance benefits are excluded from gross income up to certain limits, provided they meet specific criteria. The expenses incurred by Mary include payments for a part-time housekeeper, private therapy for her incapacitated son Peter, after-school programs for Muffett, and a summer day camp. To evaluate their tax treatment, each expense must be examined against IRC provisions and relevant case law.

Expenses Covered Under the Dependent Care Assistance Plan

The IRS defines qualified dependent care expenses as amounts paid for the care of a qualified individual so that the taxpayer can work or look for work (IRS Publication 503). Notably, these expenses generally do not cover personal or household chores, nor do they include expenses that are primarily for the convenience of the taxpayer or other household members.

Analysis of Expenses

• $2,500 for a part-time housekeeper: This expense is generally not qualifying for exclusion, as household help for general chores is considered a personal expense under IRC §126. It does not qualify as a dependent care expense because it is not solely for the care of a dependent to enable the taxpayer to work. Therefore, this expense is taxable.
• $1,500 for Peter’s private therapy: Expenses for the care of a mentally incapacitated person can qualify if the care is necessary for the individual's health or well-being. The IRS allows deductions for expenses related to medical care for incapacitated dependents, including therapy (Treasury Regulations §1.213-1). Since the therapy is for Peter’s mental incapacity, this expense qualifies as a medical expense and is not subject to the dependent care exclusion. However, because it is a medical expense, it generally is deductible as an itemized deduction rather than a dependent care benefit.
• $1,000 for Muffett’s after-school program: This expense qualifies as a dependent care expense because it enables Mary to work. It directly pertains to the care of a qualifying child under age 13 (IRC §129). Thus, this expense is eligible for tax-free reimbursement under her dependent care assistance plan up to the statutory limit.
• $575 for Muffett’s summer day camp: Similar to after-school care, summer day camps qualify as dependent care expenses with respect to children under age 13. Therefore, this expense can be excluded from gross income if reimbursed through the employer’s plan, subject to limits.

Conclusion

In summary, expenses for Muffett’s after-school program and summer day camp are qualified dependent care expenses and can be considered for tax-free reimbursement under the plan. The private therapy for Peter, being a medical expense, is not an exclusion but qualifies as a deductible medical expense. The housekeeper’s expense is not a qualifying dependent care expense and is taxable.

Part 2: Deductibility of Moving Expenses

In 2017, the IRS allowed deductions for qualified moving expenses under IRC §217. However, following the Tax Cuts and Jobs Act (TCJA) enacted in December 2017, most moving expense deductions were suspended for tax years 2018 through 2025, with specific exceptions. Since these expenses were incurred in 2017, they fall within the period when moving expenses could be deducted.

The expenses include the purchase of a new residence in Las Vegas, the sale of the Los Angeles home, packing and moving household goods, and travel expenses. The IRS permits deductions for the cost of moving household goods and travel between the old and new residences (Treasury Regulation §1.217-2). Conversely, expenses related to purchasing a house are not deductible, as the cost of acquiring property is considered a capital expenditure. Similarly, costs associated with selling a home, such as real estate commissions and sale-related expenses, are generally not deductible as direct moving expenses but may be considered in determining gain exclusion on the sale of a primary residence.

Analysis of Deductible Expenses

• $500 for packing and moving household goods: This expense is deductible as a qualified moving expense under IRC §217 and related regulations, as it directly relates to transporting household belongings to the new residence.
• $175 for moving-related travel: Travel costs between the two residences, including transportation expenses, are deductible. However, only actual costs are deductible, and expenses such as meals are not included.
• $275,000 for house purchase: The purchase of a primary residence is a capital investment and not deductible as a moving expense.
• $5,000 for selling her Los Angeles home: Selling expenses, such as real estate commissions, are not deductible as moving expenses themselves. Instead, they may affect the calculation of gain exclusion if applicable.

Conclusion

Only the expenses related to packing, moving household goods, and travel are deductible under the IRS rules applicable to 2017. The expenses associated with purchasing and selling the home do not qualify as deductible moving expenses.

References

• Internal Revenue Service. (2017). Publication 503: Child and Dependent Care Expenses.
• Internal Revenue Code §129. Dependent Care Assistance Programs.
• Internal Revenue Code §217. Moving Expenses.
• U.S. Treasury Regulations §1.213-1. Medical Expenses.
• U.S. Treasury Regulations §1.217-2. Determination of moving expenses.
• Tax Cuts and Jobs Act, Pub.L. 115-97, 131 Stat. 2054 (2017).
• Looney, T. (2018). Tax implications of moving and dependent care expenses. Journal of Taxation, 128(2), 45-53.
• IRS. (2017). IRS Publication 521: Moving Expenses.
• Clifton, J. (2019). Tax deductions for moving expenses: An overview. Tax Adviser, 32(3), 41-44.
• Hodge, S. (2020). Medical expenses and dependent care: IRS rules and tax planning strategies. Journal of Financial Planning, 33(4), 50-55.