Your office is picking up a new high-profile client and you have been assigned the task of preparing her

2021 tax estimate. In the past, she used an accountant to file a tax return with her (now ex) husband, so

changes in her personal circumstances, as well some significant changes in her asset holdings, have her

reaching out to a professional for assistance. She wants an understanding of her estimated 2021 liability

so she can project her cash flow needs for taxes and free cash for investing.

Holly Claus is a successful entrepreneur. She owns and operates a sole proprietorship gift boutique and

confectionary, Holiday Magic, specializing in holiday candies and chocolates and customized gift

stockings and baskets.

She is recently divorced from her husband, Santa Claus. After an amicable separation the divorce was

finalized in March 2021. As part of the divorce settlement Holly was awarded approximately of all of

the marital assets and alimony of $5,000 per month for 10 years. Almost immediately she sold

$150,000 of securities to generate a down payment on a new home. She financed the remainder of the

purchase with a traditional mortgage.

In July 2021 she inherited a substantial amount of cash when her uncle died. She used $200,000 to

purchase a duplex in the neighboring town where her mother lives. After making some minor

improvements and repairs, it was rented beginning September 1st. She viewed it as a good investment

that would provide her mother reliable housing well as a steady stream of prime rental income and

appreciation long term; her mother currently lives downstairs and the upstairs is rented.

She used $30,000 to purchase upgraded equipment for her candy business and mentioned that she is

unsure of how to account for this in the company's books. Prior to this investment,

she hadn't purchased any new equipment for close to 10 years. All the other business assets have been

fully depreciated.

She loaned her good friend, Easter Bunny $10,000 to start a logistics and delivery business, but

unfortunately the business did not take off and Easter informed Holly that she would be unable to repay

the debt.

Finally, she invested $100,000 municipal bonds.

She has approximately $300,000 of her inheritance remaining. It is currently sitting in a money market

account, earning nominal interest income. Once she has an idea of her tax liability, she plans to meet

with a financial advisor to discuss investment options. She is also considering purchasing a new delivery

vehicle for her business and a sizable donation to her alma mater. And although her grandchildren are

still young, she would like to set aside some college funds for each of them.

She will provide information on 2021 - to the best of her ability - via the client portal. Unfortunately,

she does not have access to her 2020 return. She expects her business income to stay relatively

consistent, but it entirely unsure of how the other items will impact her 2021 taxes.

2021 Federal income tax projection for Holly based on the

information she has provided. Your projection will be used during a meeting and discussion with Holly,

so it should be in a user-friendly format, with necessary supporting details for your manager to review.

Use Excel to build your projection model. It should contain necessary details from the information

provided. Take advantage of features in excel so that numbers can be easily updated (copy, sum total,

formulas etc.) The lead sheet, which is the client deliverable, should contain the summary; details for

supporting calculations can be shown on additional sheets (which make up the reviewer package), if

needed. Highlight areas of significant importance or planning opportunities. You can footnote

or explain as you deem appropriate.

If you have need additional information from Holly, questions must first be submitted to the client

portal (a dedicated forum in the Discussion Board of Blackboard). Please read the instructions for the

forum on Blackboard!

The assignment is due May 1st. For full credit you must submit your electronic excel file for the project

on or before the end of the day on May 1st

Holiday Magic
Net Income Projection
Revenue - Candies	$ 485,000
Revenue - Personal Appearances	$ 30,000
Renenue - Gift Baskets	$ 235,000
Revenue - Cookies	$ 125,000
Total Revenue	$ 875,000
Expenses
Ingredients (sugar, flower, chocolate, sprinkles etc.)	$ 292,000
Packaging (baskets, bows, ribbon, wraps)	$ 165,000
Small trinkets (bells, candles, ornaments)	$ 135,000
Customer satisfaction refunds	$ 9,000
Insurance	$ 16,800
Rent		$ 36,000
Utilities	$ 6,000
Part time help	$ 30,000
Payroll Taxes	$ 3,000
Uniforms	$ 3,000
Postage/Delivery	$ 40,000
Truck Repairs	$ 3,500
Speeding Tickets	$ 1,500
Dues		$ 7,000
Other	$ 30,000
Depreciation	$ -
Confectionary Seminar
	Airfare	$ 2,000
	Registration	$ 1,500
	Supplies	$ 500
	Salon	$ 200
	Promotional Giveaways	$ 500
	Apparel	$ 400
	Hotel	$ 1,750
	Meals	$ 500
	Entertainment	$ 800
Total Expenses	$ 785,950
Net Income	$ 89,050

Holly Claus YTD Payroll Information Magic Baskets Inc. YTD Gross $25,000.00 Federal Tax Withheld $ 3,750.00 FICA - SS $ 1,550.00 FICA - Med $ 362.50 Arizona - SIT $ 1,000.00

Duplex Information Rents $1500 per month. One year lease commencing 9/1 Improvements $3,500 spent in August - painting, repairs etc. Yard Maintenance $150 per month Insurance $1800 for one year coverage on property, paid in full

My basis in those shares sold was $144,000 from the divorce settlement

Mother is not a dependent

I will earn about $1800 in interest this year. I opened that account when I received by inheritance

I have not yet been assessed or paid any property taxes

Interest was 2,500 and property taxes were 12,200

No interest received from the muni bonds

Note drafted from loan to friend, but not getting a repayment

The dues were 4000 for the country club and 3000 for the Fine Chocolates Industry Asssociation

Other is 6,000 legal I paid an attorney when a customer threatened to sue me for food poisoning, 3,000 I spent looking into acquiring the clothing store that is next to me in the shopping plaza, a 6,000 fine for improperly disposing of food waste and 15,000 for advertising

Did not acquire the clothing school

58 years old

I collected refundable deposits of one month of rent - nothing else

No dues spent on lobbying by the chocolate association

The promotional giveaway items were abut 1.00 each

Bought new clothes for the seminar to look her best

Supplies at the seminar were table cover and signage