Question

Hall, a divorced person and custodian of her 12-year-old child, filed her 2014 federal income tax return as head of household. She submitted the following information to the CPA who prepared her 2014 return:

The divorce agreement, executed in 2016, provides for Hall to receive $3,000 per month, of which $600 is designated as child support. After the child reaches 18, the monthly payments are to be reduced to $2,400 and are to continue until remarriage or death. However, for the year 2019, Hall received a total of only $5,000 from her former husband. Hall paid an attorney $2,000 in 2019 in a suit to collect the alimony owed.
The $2,000 legal fee that Hall paid to collect alimony should be treated as a(n) ______.A. Deduction in arriving at AGI.B. Nondeductible personal expense.C. Itemized deduction subject to the 2%-of-AGI floor.D. Itemized deduction not subject to the 2%-of-AGI floor

Answer 1

C. Itemized deduction subject to the 2%-of-AGI floor

Step-by-step explanation:

The $2000 legal fees that Hall paid to collect alimony is treated as Itemized deduction subject to the 2%-of-AGI floor.

AGI refer to Adjusted Gross income.

According to IRS(Internal Revenue Service), Miscellaneous itemized deductions are those deductions that would have been subject to the 2% of adjusted gross income limitation. Items listed on the IRS website subject to the 2% AGI limit include:

1. Credit or debit card convenience fees

2. Clerical help and office rent in caring for investments

3. Fees to collect interest and dividends

4. Depreciation on home computers used for investments

5. Legal fees related to producing or collecting taxable income or getting tax advice.

6. Repayment of income.

7. Tax advice fees.

8. Trustee's fees for your IRA, if separately billed and paid. etc

From the above list, we can see that the $2,000 paid by Hall as legal fees to get alimony is itemized deduction subject to the 2%-of-AGI floor.