63. Alice Honeycutt, age 35, is a self-employed accountant. Alice’s Social Security number is 123-45-6789. Her address is 101 Glass Road, Hammond, LA 70402. Her income and expenses associated with her accounting practice for 2013 are as follows:

Revenues (cash receipts during 2013) $185,000 Expenses Salaries $ 95,000 Office supplies 3,200 Postage 2,900 Depreciation of equipment 42,000 Telephone 800

$143,900 Because Alice is a cash method taxpayer, she does not record her receivables as revenue until she receives cash payment. At the beginning of 2013, her accounts receivable were $48,000, and the balance had decreased to $8,000 by the end of the year.
Alice used one room in her 10-room house as the office for her accounting practice (400 square feet out of a total square footage of 4,000). She paid the following expenses related to the house during 2013:
Utilities $4,500 Insurance 2,100 Property taxes 5,200 Repairs 3,500 Alice had purchased the house on September 1, 2012, for $400,000 (exclusive of land cost).
Alice has one child, Adolph, age 16. Adolph’s Social Security number is 123-45-6788.
Adolph lives with his father during the summer and with Alice for the rest of the year.
Alice can document that she spent $16,000 during 2013 for the child’s support. The father normally provides about $10,000 per year, but this year he gave Adolph a new car for Christmas. The cost of the car was $24,000. The divorce decree is silent regarding the dependency exemption for Adolph. Alice does not provide her former spouse with a signed Form 8332 for 2013.
Under the terms of the divorce decree, Alice is to receive alimony of $8,500 per month. The payments will terminate at Alice’s death or at her remarriage.
Alice provides part of the support of her father, age 69. Her father’s Social Security number is 123-45-6787. The total support in 2013 for her father was as follows:
Social Security benefits $5,200 From Alice 3,200 From Bob, Alice’s brother 2,200 From Susan, Alice’s sister 2,300 Bob and Susan have both indicated their willingness to sign a multiple support waiver form if it will benefit Alice.
Alice’s deductible itemized deductions during 2013, excluding any itemized deductions related to the house, were $21,000. She made estimated tax payments of $29,000.
Part 1—Tax Computation Compute Alice’s lowest net tax payable or refund due for 2013.
Part 2—Tax Planning Alice and her former husband have been discussing the $8,500 alimony he pays her each month. Because his new wife has a health problem, he does not think he can afford to continue to pay the $8,500 each month. He is in the 15% tax bracket. If Alice will agree to decrease the amount by $1,000 each month, he will agree that the amount paid is not alimony for tax purposes. Assume that Alice projects that her marginal tax rate in 2014 will be 25% (both with and without the alimony decrease). Write a letter to Alice that contains your advice on whether she should agree to her former husband’s proposal.
Also prepare a memo for the tax files.