Dorthy who is 55 years old, works as a financial analyst inCapital One bank....

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Accounting

Dorthy who is 55 years old, works as a financial analyst inCapital One bank. Her monthly
salary is $13,000. Dorthy is married to John who is 66 years of ageand works as a
salesman for a local car dealership. His monthly salary from thedealership is $8,500 per
month but he has a very flexible schedule so he supplements hissalary by accepting an
employment in the evening at a high-end restaurant and earn $3,000per month.
They have 3 kids (Nancy is 12, Hana is 15, and Joseph is 19 andattending a local
community college). Dorthy has two sisters and three brothers. Johnhas only one sister.
Dorthy and John live in Detroit, Michigan.
Additional information for 2019:
1) They received interest income of $5,000 from their savingaccount in
Capital one and $3,500 from Municipal bonds.
2) They sold stocks of Facebook for $25,000 (the stocks werepurchased in
2016 for $29,000).
3) Dorthy invested $7,800 in an IRA account in JB Morgan whileJohn
invested $9,000 in an IRA account in Vanguard.
4) Dorthy and John paid $60,000 mortgage interest in 2019 for$1,200,000
mortgage loan that was taken on January 1, 2017. The interest rateis 6% on
this mortgage.
5) John paid alimony of $1,500 monthly to his ex-wife, Lori. Thedivorce
happened in 2015.
6) Dorthy received cash dividends of $3,800 from Amazon stocks onMarch
20, 2019.
7) Dorthy and John spent $100,000 from their own-pocket onmedical
treatment during 2019. Their health insurance company coveredonly
$400,000 of the total medical cost. Total medical cost is$500,000.
8) Dorthy donated cash $10,500 to her local church.
9) Dorthy’s employer (Capital one) withheld $22,800 for federalincome
taxes, $14,700 for state income taxes, and the required amounts forFICA and Medicare from her paychecks.
10)John’s two employers withheld $16,500 for federal income taxes,$10,900
for state income taxes, and the required amounts for FICA andMedicare
from his paychecks.
11)John’s father died on June 1, 2019. John received $500,000 fromhis
father’s life insurance.
Assume that Dorthy and John file their tax return for 2019 asmarried filing joint return.
Required: Answer the following question. (Provide detailedanswers
for each question and provide justification of how did you reachyour
conclusion).
1) Calculate the gross income of Dorthy and John for 2019. Showthe items that should be included
or excluded from income of Dorthy and John separately. Show alsothe total that will be included
in their tax return. Explain how and why.
2) List all the items and the amounts of all possible deductionsFOR AGI applicable to Dorthy and
John. Explain how and why.
3) List all the items and the amounts of all possible deductionsFROM AGI (itemized Deductions)
applicable to Dorthy and John. Explain how and why.
4) Calculate the taxable income and the gross amount of tax. Showall your calculations.
5) How much Social security and Medicare taxes should have beenwithheld by each of the three
employers (Capital One, Car Dealership, and High-endrestaurant).
6) Given their high level of income, what recommendations would youprovide them with on how to
reduce their tax liabilities.

Answer & Explanation Solved by verified expert

4.2 Ratings (580 Votes)

Particulars Dorthy John Income from Salary Capital One bank 156000 1213000 Car Dealership 102000 128500 High End Restaurant 36000 123000 Total 156000 138000 Income from Other Sources Interest from Saving bank account 5000 5000 Interest from Municipal Bonds 3500 3500 Cash Dividends 3800 Total 12300 8500 Income from Capital Gainloss Loss on sale of facebook shares 4000 4000 2500029000 Total 4000 4000 Gross Income for tax return 164300 142500 Particulars Dorthy John Income from Salary Capital One bank 156000 1213000 Car Dealership 102000 128500 High End Restaurant 36000 123000 TotalA 156000 See Answer

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Transcribed Image Text

In: AccountingDorthy who is 55 years old, works as a financial analyst inCapital One bank. Her...Dorthy who is 55 years old, works as a financial analyst inCapital One bank. Her monthlysalary is $13,000. Dorthy is married to John who is 66 years of ageand works as asalesman for a local car dealership. His monthly salary from thedealership is $8,500 permonth but he has a very flexible schedule so he supplements hissalary by accepting anemployment in the evening at a high-end restaurant and earn $3,000per month.They have 3 kids (Nancy is 12, Hana is 15, and Joseph is 19 andattending a localcommunity college). Dorthy has two sisters and three brothers. Johnhas only one sister.Dorthy and John live in Detroit, Michigan.Additional information for 2019:1) They received interest income of $5,000 from their savingaccount inCapital one and $3,500 from Municipal bonds.2) They sold stocks of Facebook for $25,000 (the stocks werepurchased in2016 for $29,000).3) Dorthy invested $7,800 in an IRA account in JB Morgan whileJohninvested $9,000 in an IRA account in Vanguard.4) Dorthy and John paid $60,000 mortgage interest in 2019 for$1,200,000mortgage loan that was taken on January 1, 2017. The interest rateis 6% onthis mortgage.5) John paid alimony of $1,500 monthly to his ex-wife, Lori. Thedivorcehappened in 2015.6) Dorthy received cash dividends of $3,800 from Amazon stocks onMarch20, 2019.7) Dorthy and John spent $100,000 from their own-pocket onmedicaltreatment during 2019. Their health insurance company coveredonly$400,000 of the total medical cost. Total medical cost is$500,000.8) Dorthy donated cash $10,500 to her local church.9) Dorthy’s employer (Capital one) withheld $22,800 for federalincometaxes, $14,700 for state income taxes, and the required amounts forFICA and Medicare from her paychecks.10)John’s two employers withheld $16,500 for federal income taxes,$10,900for state income taxes, and the required amounts for FICA andMedicarefrom his paychecks.11)John’s father died on June 1, 2019. John received $500,000 fromhisfather’s life insurance.Assume that Dorthy and John file their tax return for 2019 asmarried filing joint return.Required: Answer the following question. (Provide detailedanswersfor each question and provide justification of how did you reachyourconclusion).1) Calculate the gross income of Dorthy and John for 2019. Showthe items that should be includedor excluded from income of Dorthy and John separately. Show alsothe total that will be includedin their tax return. Explain how and why.2) List all the items and the amounts of all possible deductionsFOR AGI applicable to Dorthy andJohn. Explain how and why.3) List all the items and the amounts of all possible deductionsFROM AGI (itemized Deductions)applicable to Dorthy and John. Explain how and why.4) Calculate the taxable income and the gross amount of tax. Showall your calculations.5) How much Social security and Medicare taxes should have beenwithheld by each of the threeemployers (Capital One, Car Dealership, and High-endrestaurant).6) Given their high level of income, what recommendations would youprovide them with on how toreduce their tax liabilities.