Paul Stephowski is a single, 39-year old attorney with a medium-sized law firm in Philadelphia. He...

  

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Paul Stephowski is a single, 39-year old attorney with a medium-sized law firm in Philadelphia. He earned $89,000 this year and anticipates that his earnings will substantially increase within the next few years. Paul entered the legal profession later than most attorneys. He spent 5 years in the Navy before entering college at the age of 24. After graduating from college with a degree in English he worked as an editor at Harper House publishers. At the age of 31 he was accepted at William Mitchell School of Law and completed his law study 3 years later. He passed the bar exam immediately after graduation and went to work for a large law firm in his hometown. After 2 years he quit this firm and joined a smaller firm where he felt he had more opportunity for advancement. He has been with this firm for 3 years and plans to make his career there. Paul rents an apartment downtown one block from his office. He enjoys the city lifestyle and especially likes being able to walk to work in 5 minutes any time of the day or year. He finds it very convenient when entertaining clients or potential clients. Paul belongs to the downtown YMCA and to the Main Line Golf and Racquet Club, both of which he uses principally for recreation, although he does occasionally entertain clients or prospective clients at each of the clubs. Paul is charitably inclined, and contributes regularly to organizations supporting our Armed Forces. Paul has accumulated a modest portfolio of assets consisting of $25,200 in municipal bonds, $31,500 in stock, $7,900 in a Savings account and $11,000 in zero coupon bonds maturing in 15 years for $50,000. He saved very little while in the Service and has only recently finished repaying his student loans for law school. Although he enjoys a fairly comfortable lifestyle, he has some concerns that he may not be investing an adequate proportion of his earning to provide the financial security he desires. He also feels that as his income rises his tax burden is becoming excessive. Another concern is the City of Philadelphia wage tax. The facts he presents are as follows: Personal facts Salary Single No dependents Investment Facts Dividends Interest on CDs (redeemed early) Long-term capital gain Short-term capital loss Interest on municipal bonds Other Facts Early withdrawal penalty on CD State sales tax Contribution to charity Received for writing a magazine article Winnings in contest Fees paid to professional organizations Paid for continuing education requirements of state bar Received as damage award for physical injuries in an auto accident that occurred the previous year Attended a 3-day National Lawyers Guild conference in Palm Springs in February; stayed an additional 2 days for a short golfing vacation Round-trip airfare Registration fee Car rental fees ($32/day) Meals ($42/day) Greens fees and cart rental Room ($110/day) Dues and Fees at Main Line Golf and Racquet Club Dues and fees at YMCA Medical premiums Federal tax withheld State and local taxes withheld $89,000 900 475 13,370 2,405 1,764 213 1.515 8,427 50 90 203 370 2,200 450 1,000 160 210 100 550 1.875 350 2,420 10,750 6,460 Requirements for Answering the Case On the basis of the facts as presented, answer the following questions. (You need not be familiar with all the specific tax forms used when actually filing the return.) 1. Determine total income (from all sources) 2. List the exclusions from income. 3. List the adjustments to income. 4. Compute the adjusted gross income. 5. List the deductions from income. 6. Compute the taxable income. 7. Compute the taxes payable. 8. How might Paul improve his tax situation? Paul Stephowski is a single, 39-year old attorney with a medium-sized law firm in Philadelphia. He earned $89,000 this year and anticipates that his earnings will substantially increase within the next few years. Paul entered the legal profession later than most attorneys. He spent 5 years in the Navy before entering college at the age of 24. After graduating from college with a degree in English he worked as an editor at Harper House publishers. At the age of 31 he was accepted at William Mitchell School of Law and completed his law study 3 years later. He passed the bar exam immediately after graduation and went to work for a large law firm in his hometown. After 2 years he quit this firm and joined a smaller firm where he felt he had more opportunity for advancement. He has been with this firm for 3 years and plans to make his career there. Paul rents an apartment downtown one block from his office. He enjoys the city lifestyle and especially likes being able to walk to work in 5 minutes any time of the day or year. He finds it very convenient when entertaining clients or potential clients. Paul belongs to the downtown YMCA and to the Main Line Golf and Racquet Club, both of which he uses principally for recreation, although he does occasionally entertain clients or prospective clients at each of the clubs. Paul is charitably inclined, and contributes regularly to organizations supporting our Armed Forces. Paul has accumulated a modest portfolio of assets consisting of $25,200 in municipal bonds, $31,500 in stock, $7,900 in a Savings account and $11,000 in zero coupon bonds maturing in 15 years for $50,000. He saved very little while in the Service and has only recently finished repaying his student loans for law school. Although he enjoys a fairly comfortable lifestyle, he has some concerns that he may not be investing an adequate proportion of his earning to provide the financial security he desires. He also feels that as his income rises his tax burden is becoming excessive. Another concern is the City of Philadelphia wage tax. The facts he presents are as follows: Personal facts Salary Single No dependents Investment Facts Dividends Interest on CDs (redeemed early) Long-term capital gain Short-term capital loss Interest on municipal bonds Other Facts Early withdrawal penalty on CD State sales tax Contribution to charity Received for writing a magazine article Winnings in contest Fees paid to professional organizations Paid for continuing education requirements of state bar Received as damage award for physical injuries in an auto accident that occurred the previous year Attended a 3-day National Lawyers Guild conference in Palm Springs in February; stayed an additional 2 days for a short golfing vacation Round-trip airfare Registration fee Car rental fees ($32/day) Meals ($42/day) Greens fees and cart rental Room ($110/day) Dues and Fees at Main Line Golf and Racquet Club Dues and fees at YMCA Medical premiums Federal tax withheld State and local taxes withheld $89,000 900 475 13,370 2,405 1,764 213 1.515 8,427 50 90 203 370 2,200 450 1,000 160 210 100 550 1.875 350 2,420 10,750 6,460 Requirements for Answering the Case On the basis of the facts as presented, answer the following questions. (You need not be familiar with all the specific tax forms used when actually filing the return.) 1. Determine total income (from all sources) 2. List the exclusions from income. 3. List the adjustments to income. 4. Compute the adjusted gross income. 5. List the deductions from income. 6. Compute the taxable income. 7. Compute the taxes payable. 8. How might Paul improve his tax situation?