Case Study – Taxes

Case Study – Taxes

Dr. Walter Johnson

Dr. Johnson, age 52, was divorced in 2008.

Children: Charles Johnson, age 14, is in the custody of Dr. Johnson’s ex- wife.

Dr. Johnson is employed as a staff doctor at St. George Hospital; he is an active participant in the hospital pension plan.

Dr. Johnson assembled the following information for calculation of his tax liability.

Income

Salary: $250,000

Interest income from taxable money market fund: $2,600

Qualified dividend income: $6,500

Municipal bond interest income: $14,000

Short-term capital gain income: $4,000

Expenses

IRA contribution: $6,500

Alimony payment: $24,000

State and local income taxes: $10,500

Real estate taxes: $4,800

Sales tax on motor vehicle purchase: $2,500

General sales tax: $400

Home mortgage interest: $17,600

Credit card and automobile loan interest: $10,400

Unreimbursed employee business expenses: $1,790

  1. What is Dr. Johnson’s adjusted gross income?
  2. What is Dr. Johnson’s taxable income?
  3. What is Dr. Johnson’s total tax due?
  4. Describe the fundamental methods that Dr. Johnson has used to manage his tax liability effectively.

AGI:

IRA Contribution

Alimony Payment

Salary

Interest Income on Money Market

Qualified Dly Income

ST Capital Gain

Deductions:

SALT

Real Estate Taxes

Sales Tax on MV

General Sales Tax

Home Mortgage

Taxable Income

Depend on AGI and Deductions

Determine Standard or Deductions

Includes Capital Gains

Remove Cap Gains before calculating ordinary Income

Capital Gains

Qualitied Dividend Income

Municipal Bond Interest is Tax Free at Fed Level (Subtracted Out)

Short Term Gain is not Subtracted so it gets Ordinary Income Tax

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