Purchase Solution

Terms of property or alimony payment to be tax free to Elizabeth

Not what you're looking for?

Ask Custom Question

Kevin and Elizabeth are negotiating a divorce settlement. Kevin is in the
35 percent marginal tax bracket and Elizabeth is in the 15 percent marginal
tax bracket. Kevin has offered to pay Elizabeth $15,000 each year for
10 years; payments would cease if Elizabeth dies before the end of the 10-
year period. Elizabeth is willing to settle for that amount only if the payments
qualify as a tax-free property settlement because she needs at least
$15,000 after tax to meet her expenses.

a. How much would Elizabeth have to receive in taxable alimony payments
from Kevin to have the equivalent of a $15,000 tax-free payment?

b. If Kevin agrees to an $18,500 alimony payment, what is the after-tax
cash flow for Kevin and Elizabeth? By how much does their cash flow
improve over the proposed $15,000 property settlement payment?

Purchase this Solution
Solution Summary

The terms of property or alimony payments to be tax free to Elizabeth are examined.

Solution Preview

Taxation

Kevin and Elizabeth are negotiating a divorce settlement. Kevin is in the
35 percent marginal tax bracket and Elizabeth is in the 15 percent marginal
tax bracket. Kevin has offered to pay Elizabeth $15,000 each year for
10 years; payments would cease if Elizabeth dies before the end of the 10-
year period. Elizabeth is willing to settle for that ...

Purchase this Solution
Free BrainMass Quizzes
Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Motivation

This tests some key elements of major motivation theories.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

View More Free Quizzes
Related BrainMass Solutions

  • Taxation of Alimony (Including Recapture)

    Payments must be made pursuant to a divorce or separation instrument; 4. Payments may not be designated as non-qualifying for tax deductions by the payer or non-taxable to the recipient; 5. Spouses may not be members of the same household; 6.

  • Personal Income Tax

    Payments to keep up the payer's property, or 5. Use of property. This solution is comprised of a detailed explanation to answer the tax deductions as a result of divorce.

  • Five major deductions and two credits to reduce tax liability

    e) Taxpayer has no liability to make any payment (in cash or property) after the death of his/her spouse or former spouse. f) The payment is not treated as child support.

  • Income tax: alimony and property transfers

    The solution discusses the tax treatment of the alimony payment and the transfer of the house.

  • Income Tax Accounting Scenarios

    Under the terms of the divorce agreement, Tracy would receive the house and Tracy would pay Jesse $100,000 each year for 5 years. If Jesse should die, the remaining payments would be made to his estate.

  • Tax Strategies 3-38, 3-58, I3-59, I8-40, I10-52, I13-65, I6-

    Those are the rules but some taxpayers got creative by trying to make alimony include some features of property settlement. By shifting some property payments into alimony, Fred would be able to deduct them.

  • Numerous Taxation Questions

    To qualify as alimony, payments cannot continue after the death of the recipient. To qualify as alimony, payments must be made under a written agreement or divorce decree that does not designate the payments as "nonalimony" or child support.

  • Adjusted Gross Income Calculation 2009 Single

    The State of Nebraska bonds are not included in the Federal Income Tax, but will probably be included in state or local income tax.

  • Calculate Saul's Adjusted gross income (AGI).

    His deductible expenses are as follows: Alimony $12,000 Charitable contributions 2,000 Contribution to a traditional IRA 4,000 Expenses paid on rental property 5,000 Interest on home mortgage and property taxes on personal residence 7,000

View More Related Solutions