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.