Amelia Oliver, a single mother, is a client of your tax firm. She and her two$-$year$-$old son, Miguel, are U$.$S$.$ citizens who lived together the entire year. Ms$.$ Oliver provides $100\%$ of her son$$s support through her full$-$time job as an occupational therapist. She pays for day care and contributes $$3,000$ to her employer$$s dependent care FSA $($DCFSA$),$ a pre$-$tax benefit account used to pay for eligible dependent care services. $($The textbook refers to it as a dependent care assistance program.$)$ Your intern prepared Ms$.$ Oliver$$s tax return, and you will review it$.$ Analyzing a completed tax return will help you visualize how one error can cascade through the return.

Directions

First, review Ms$.$ Oliver$$s provided tax return for accuracy. Use the data provided in the Client Data document. You may find it helpful to manually calculate taxable income.

Then, draft an email to the intern describing the error and explaining the reason for making changes. These reasons will include applying the rules of Section $(61)$a and explaining taxable income.

Specifically, you must address the following criteria:

Main Error: Describe the main error found in the return.

Changed Calculations: Explain how the main error led to incorrect tax return calculations that will be changed.

Applying the Rules: Explain how to apply the rules of Section $(61)$a to determine taxable items.

Taxable Income: Explain when an item of income is taxable under both the cash and accrual methods of accounting.TAX $650$ Module Four Client Data

Wages $($before dependent care contribution of $$3,000)$: $$75,452$

Additional income from consulting on a new therapy program, paid on January $2$ but mailed

December $30$ of the tax year: $$1,200$

Gift from Ms$.$ Oliver's parents to purchase a car: $$16,000$

Student loan interest: $$1,460$

Day care expenses: $$9,600$

Federal income tax withheld from wages: $$10,523$