Question

Dorthy who is 55 years old, works as a financial analyst in Capital One bank. Her monthly salary is $13,000. Dorthy is married to John who is 66 years of age and works as a salesman for a local car dealership. His monthly salary from the dealership is $8,500 per month but he has a very flexible schedule so he supplements his salary by accepting an employment in the evening at a high-end restaurant and earn $3,000 per month.

They have 3 kids (Nancy is 12, Hana is 15, and Joseph is 19 and attending a local community college). Dorthy has two sisters and three brothers. John has only one sister. Dorthy and John live in Detroit, Michigan.

Additional information for 2019:

1) They received interest income of $5,000 from their saving account in Capital one and $3,500 from Municipal bonds.

2) They sold stocks of Facebook for $25,000 (the stocks were purchased in 2016 for $29,000).

3) Dorthy invested $7,800 in an IRA account in JB Morgan while John 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 rate is 6% on this mortgage.

5) John paid alimony of $1,500 monthly to his ex-wife, Lori. The divorce happened in 2015.

6) Dorthy received cash dividends of $3,800 from Amazon stocks on March 20, 2019.

7) Dorthy and John spent $100,000 from their own-pocket on medical treatment during 2019. Their health insurance company covered only $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 federal income taxes, $14,700 for state income taxes, and the required amounts for FICA 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 and Medicare from his paychecks.

11) John’s father died on June 1, 2019. John received $500,000 from his father’s life insurance.

Given their high level of income, what recommendations would you provide them with on how to reduce their tax liabilities.

Answer 1

Below are the recommendations to reduce their tax liabilities.

1 .Invest in 401(k) plan which will reduce the tax amount until withdraw the amount

2 increase savings in IRA that will allow reduce the tax amount

3. Purchase the health insurance for family and self it will give tax advantage and also avoid spending own money

4. And need to buy life insurance for family it will save more money for retirement

5 And increase number of years for mortgage interest