Tax planning clients - Case Study Example

The earnings set aside would be deposited in the flexible spending account and would be free of tax. That is, the funds deposited in the flexible spending account are not subject to taxation. According to the FSA provisions, the whole amount deposited in the flexible spending account should be spent within the coverage period specified otherwise; the non-spent amount is forfeited or subjected to taxation. According to the case, the couple never funded their flexible spending account; therefore, all their transactions are subject to tax.

Below are questions and answers in reference to tax provisions. Q1: in general, if the insurance benefit is to be paid to the beneficiary at once, the amount is not subject to tax. However, if the insurance benefit is paid in monthly instalments, any interest that accumulates on top of the face value is taxable. By general law, life insurance benefits are excluded from tax. If, at the time of death, the owner of the insurance policy is the deceased, the insurance benefits are subject to tax (estate tax).

However, if the deceased is not the owner of the insurance policy, at the time of death, the benefits are not subject to tax. With respect to the case in consideration, Tom was the owner of the life insurance policy at the time of his death. Therefore, Josephine would be required by the IRS to claim the face value of the life insurance for both federal and state tax purposes (Lal & Lal 56-120). Q 2: any amount spent by an individual on medical services is supposed to be reimbursed provided there is a scheme to that effect.

In general, unreimbursed medical expenses are tax deductible. That is, the monetary worth of the medical service should be deducted from the gross income. If the amount spent by the Marchs on medical services is 10% of their adjusted gross income, they should deduct the unreimbursed medical expense from their gross profit. This move will reduce their gross