CASE 3 Julia Price Thinks About Reducing Her Income Taxes Julia does well financially because she earns a good salary as an engineer, is somewhat frugal, and is making the maximum contribution to her employer-sponsored retirement plan. After reading about ways to decrease her income tax liability, she has some thoughts. Buying a home is an option, but Julia is worried about the changing prices of housing. As an accomplished sculptural artist, she is thinking about creating a sideline business to sell some of her work and convert some everyday expenses into business expenses. She is considering taking a tax-deductible job-hunting trip and then stretching the trip into a vacation. Also on her possibilities list is to start a masters degree program in engineering or a masters in business administration to enhance her skills. Finally, Julia figures she could contribute $300 a month to a Roth IRA account. Offer your opinions about her

The Johnsons Calculate Their Income Taxes Several years have gone by since Harry and Belinda graduated from college and started their working careers. They both earn good salaries. They believe that they are paying too much in federal income taxes. The Johnsons total income last year included Harrys salary of $73,000 and Belindas salary of $94,000. She contributed $3,000 to her 401(k) for retirement. They earned $400 in interest on savings and checking and $3,000 interest income from the trust that is taxed in the same way as interest income from checking and savings accounts. Harry contributed $3,000 into a traditional IRA. (a) What is the Johnsons reportable gross income on their joint tax return? (b) What is their adjusted gross income? (c) What is the total value of their exemptions? (d) How much is the standard deduction for the Johnsons? (e) The Johnsons are buying a home that has monthly mortgage payments of $3,000, or $36,000 a year. Of this amount, $32,800 goes for interest and real estate property taxes. The couple has a $14,000 in other itemized deductions. Using these numbers and Table 4-2, calculate their taxable income and tax liability.