Dan was employed as a manager by WJJJ, Inc. (employer identification number 111111111, 604 Franklin Street, Corbin, KY 27521), and Freida was employed as a salesperson for Corbin Realty, Inc. (employer identification number 987654321, 899 Central Street, Corbin, Ky 27521). Information from the W2 Forms provided by the employers is presented below. Dan and Freida use the cash method. Line Description Dan Freida 1 Wages, tips, other compensation $86,000 $65,000 2 Federal income tax withheld $12,000 $11,400 3 Social Security wages $86,000 $65,000 4 Social Security tax withheld $5,332 $4,030 5 Medicare wages and tips $86,000 $65,000 6 Medicare tax withheld $1,247 $943 15 State Kentucky Kentucky 16 State wages, tips, etc. $86,000 $65,000 17 State income tax withheld $2,900 $2,700 Freida sold a house on December 30, 2010, and will be paid a commission of $3,100 (not included in the $65,000 reported on the W2) on the January 10, 2011 closing date. Other income (as reported on 1099 Forms) for 2010 consisted of the following: Dividends on CSX stock (qualified) $3,500 Interest on savings at Second Bank 1,600 Interest on City of Corbin bonds 900 Interest on First Bank CD 383 The $383 from First Bank was original issue discount. Dan and Freida collected $15,000 on the First Bank CD that matured on September 30, 2010. The CD was purchased on October 1, 2008, for $14,000, and the yield to maturity was 3.5%. Dan received a Schedule K1 from the Falcon Partnership, which showed his distributive share as $9,000. In addition to the above information, Dan and Freidas itemized deductions included the following: Paid on 2009 Kentucky income tax $ 400 Personal property tax paid 600 Real estate taxes paid 1,800 Interest on home mortgage (Corbin S&L) 4,900 Cash contributions to the Boy Scouts 975 Sales tax from the sales tax table is

Part 2 Tax Planning

Dan plans to reduce his work schedule and work only half-time for WJJJ in 2015. He has been writing songs for several years and wants to devote more time to developing a career as a songwriter. Because of the uncertainty in the music business, however, he would like you to make all computations assuming that he will have no income from songwriting in 2015. To make-up for the loss of income, Freida plans to increase the amount of time she spends selling real estate. She estimates that she will be able to earn $90,000 in 2015. Assume that all other income and expense items will be approximately the same as they were in 2014. Assume that Sam will be enrolled in college as a full-time student for the summer and fall semesters. Will the Butlers have more or less disposable income (after Federal income tax) in 2015? Write a letter to the Butlers that contains your advice supported by computations and prepare a memo for the tax file