I need help with the net reduction amount Dan plans to reduce his work schedule and work only half-time for WJJJ in 2017. He has
I need help with the net reduction amount
Dan plans to reduce his work schedule and work only half-time for WJJJ in 2017. 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 2017. 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 2017.
Assume that all other income and expense items will be approximately the same as they were in 2016.
Assume that Sam will be enrolled in college as a full-time student for the summer and fall semesters. Gina and Sam will continue to qualify as dependents.
Assume a personal exemption amount of $4,050 for 2017.
The $3,100 commission received on January 10, 2017, is included in the $90,000 income to be earned by Freida in 2017.
The 25% 2016 marginal tax rate remains the same in 2017.
Interest income, dividend income, partnership income, and itemized deductions are the same for 2017.
Complete the following paragraph regarding whether the Butlers will have more or less disposable income (after Federal income tax) in 2017.
There will be a net $________reduction in salary and wages which will also result in a decrease the Kentucky income tax, Social Security tax, and Medicare tax . The net reduction in the Butler's aftertax cash flow will be approximately $21,200 .
Daniel B. Butler and Freida C. Butler, husband and wife, file a joint return. The Butlers live at 625 Oak Street in Corbin, KY 40701. Dan's Social Security number is 111-11-1111, and Freida's is 123-45-6789. Dan was born on January 15, 1965, and Freida was born on August 20, 1966.
During 2016, Dan and Freida furnished over half of the total support of each of the following individuals, all of whom still live at home:
Gina, their daughter, age 22, a full-time student, who married on December 21, 2016, has no income of her own and for 2016 did not file a joint return with her husband, Casey, who earned $10,600 during 2016. Gina's Social Security number is 123-45-6788.
Sam, their son, age 20, who had gross income of $6,300 in 2016, dropped out of college in October 2016. He had graduated from high school in May 2016. Sam's Social Security number is 123-45-6787.
Ben, their oldest son, age 26, is a full-time graduate student with gross income of $5,200. Ben's Social Security number is 123-45-6786.
Dan was employed as a manager by WJJJ, Inc. (employer identification number 11-1111111, 604 Franklin Street, Corbin, KY 40702), and Freida was employed as a salesperson for Corbin Realty, Inc. (employer identification number 98-7654321, 899 Central Street, Corbin, Ky 40701). Selected 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 | $74,000 | $86,000 |
| 2 | Federal income tax withheld | 11,000 | 12,400 |
| 17 | State income tax withheld | 2,960 | 3,440 |
Freida sold a house on December 30, 2016, and will be paid a commission of $3,100 (not included in the $86,000 reported on the W2) on the January 10, 2017 closing date.
Other income (as reported on 1099 Forms) for 2016 consisted of the following:
| Dividends on CSX stock (qualified) | | $4,200 |
| Interest on savings at Second Bank | | 1,600 |
| Interest on City of Corbin bonds | | 900 |
| Interest on First Bank CD | | 382 |
The $382 from First Bank was original issue discount. Dan and Freida collected $16,000 on the First Bank CD that matured on September 30, 2016. The CD was purchased on October 1, 2014, for $14,995, and the yield to maturity was 3.3%.
Dan received a Schedule K1 from the Falcon Partnership, which showed his distributive share of income as $7,000 (non passive income).
In addition to the above information, Dan and Freida's itemized deductions included the following:
| Paid on 2016 Kentucky income tax | | $700 |
| 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 | | 800 |
Sales tax from the sales tax table is $1,860. Dan and Freida made Federal estimated tax payments of $8,000. All members of the family had health insurance coverage for all of 2016. Dan and Freida do not wish to contribute to the Presidential Election Campaign. The Kentucky income tax rate is 4%.
Required:
Compute Dan and Freidas 2016 Federal income tax payable (or refund due). Use Form 1040 and Schedules A, B, and E to complete this tax return. If there is a tax overpayment, the Butlers would like a refund. If additional tax is due, assume no underpayment penalty applies.
It may be necessary to complete the tax schedules before completing Form 1040.
Enter all amounts as positive numbers.
If an amount box does not require an entry or the answer is zero, enter "0".
When computing the tax liability, do not round your immediate calculations.
If required round your answers to the nearest dollar.
Make realistic assumptions about any missing data.
Use the 2016 Tax Rate Schedule provided. Do not use the Tax Tables.
| 1040 | Department of the TreasuryInternal Revenue Service (99) U.S. Individual Income Tax Return | 2016 | OMB No. 1545-0074 | IRS Use Only. | | For the year Jan. 1Dec. 31, 2016, or other tax year beginning | ,2016, ending | ,20 | See separate instructions. | | Your first name and initial DANIEL B | Last name BUTLER | Your social security number 111-11-1111 | | If a joint return, spouse's first name and initial FREIDA C | Last name BUTLER | Spouse's social security number 123-45-6789 | | Home address (number and street). If you have a P.O. box, see instructions. 625 OAK STREET | Apt. no. | Make sure the SSN(s) above and on line 6c are correct. | | City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below (see instructions). CORBIN KY 40701 | Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 to go to this fund. Checking a box below will not change your tax or refund. You Spouse | | Foreign country name | Foreign province/state/country | Foreign postal code | | Filing status | | Married filing jointly (even if only one had income) | | Exemptions | 6a | Yes Yourself. | If someone can claim you as a dependent, do notcheck box 6a . . . . . . . . . . . . . . . . . . . . . | } | | Boxes checked on 6a and 6b | | | No. of children on 6c who: lived with you | | | did not live with you due to divorce or separation (see instructions) | | | Dependents on 6c not entered above | | | Add numbers on lines above | | | | b | Yes Spouse | . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | If more than four dependents, see instructions and check here. | c | Dependents: | (2) Dependent's social security number | (3) Dependent's relationship to you | (4) If child under age 17 qualifying for child tax credit (see instructions) | | | | | GINA BUTLER | 123-45-6788 | Daughter | | | SAM BUTLER | 123-45-6787 | Son | | | | | | | | | | | | | d | Total number of exemptions claimed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | Income Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld. If you did not get a W-2, see instructions. | 7 | Wages, salaries, tips, etc. Attach Form(s) W-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 7 | | | | 8a | Taxable interest. Attach Schedule B if required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 8a | | | | b | Tax-exempt interest. Do not include on line 8a . . . . . . . . | 8b | | | | | | | 9a | Ordinary dividends. Attach Schedule B if required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 9a | | | | b | Qualified dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 9b | | | | | | | 10 | Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . . . . . . . . . . . | 10 | | | | 11 | Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 11 | | | | 12 | Business income or (loss). Attach Schedule C or C-EZ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 12 | | | | 13 | Capital gain or (loss). Attach Schedule D if required. If not required, check here . . . . . . | 13 | | | | 14 | Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 14 | | | | 15a | IRA distributions . . . . . . . . . | 15a | | | b | Taxable amount . . . . | 15b | | | | 16a | Pensions and annuities . . . . . | 16a | | | b | Taxable amount . . . . | 16b | | | | 17 | Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . . . | 17 | | | | 18 | Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 18 | | | | 19 | Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 19 | | | | 20a | Social security benefits . . . . . | 20a | | | b | Taxable amount . . . . | 20b | | | | 21 | | Other income. List type and amount | | | 21 | | | | 22 | Combine the amounts in the far right column for lines 7 through 21. This is your total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 22 | | | | Adjusted Gross Income | 23 | Educator expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 23 | | | | | | | 24 | Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 or 2106-EZ. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 24 | | | | | | 25 | Health savings account deduction. Attach Form 8889 . . . . . | 25 | | | | | | 26 | Moving expenses. Attach Form 3903 . . . . . . . . . . . . . . . . . | 26 | | | | | | 27 | Deductible part of self-employment tax. Attach Schedule SE | 27 | | | | | | 28 | Self-employed SEP, SIMPLE, and qualified plans . . . . . . . . . | 28 | | | | | | 29 | Self-employed health insurance deduction . . . . . . . . . . . . . | 29 | | | | | | 30 | Penalty on early withdrawal of savings . . . . . . . . . . . . . . . . | 30 | | | | | | 31a | Alimony paid b Recipient's SSN | 31a | | | | | | 32 | IRA deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 32 | | | | | | 33 | Student loan interest deduction . . . . . . . . . . . . . . . . . . . . | 33 | | | | | | 34 | Tuition and fees. Attach Form 8917 . . . . . . . . . . . . . . . . . . | 34 | | | | | | 35 | Domestic production activities deduction. Attach Form 8903 | 35 | | | | | | 36 | Add lines 23 through 35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 36 | | | | 37 | Subtract line 36 from line 22. This is your adjusted gross income . . . . . . . . . . . . . | | 37 | | | | KIA | For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. | | Form 1040 (2016) | |
| Form 1040 (2016) | DANIEL B BUTLER | 111-11-1111 | Page 2 | | | 38 | Amount from line 37 (adjusted gross income) | | 38 | | | | Tax and Credits | 39a | | Check if: | { | You were born before January 2, 1952, Blind. Spouse was born before January 2, 1952, Blind. | } | Total boxes checked 39a | | | | | | | Standard Deduction for People who check any box on line 39a or 39b or who can be claimed as a dependent, see instructions. All others: Single or Married filing separately, $6,300 Married filing jointly or Qualifying widow(er), $12,600 Head of household, $9,300 | b | If your spouse itemizes on a separate return or you were a dual-status alien, check here 39b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | | | | 40 | Itemized deductions (from Schedule A) or your standard deduction (see left margin) | 40 | | | | 41 | Subtract line 40 from line 38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | 41 | | | | 42 | Exemptions. If line 38 is $155,650 or less, multiply $4,050 by the number on line 6d. Otherwise, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | 42 | | | | 43 | Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter -0- | 43 | | | | 44 | Tax (see instructions). Check if any from: a Form(s) 8814 b Form 4972 c ___ | | 44 | | | | 45 | Alternative minimum tax (see instructions). Attach Form 6251 . . . . . . . . . . . . . . . . . | | 45 | | | | 46 | Excess advance premium tax credit repayment. Attach Form 8962 . . . . . . . . . . . . . . . . | | 46 | | | | 47 | Add lines 44, 45, and 46 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | 47 | | | | 48 | Foreign tax credit. Attach Form 1116 if required . . . . . . . . . . . . | 48 | | | | | | | 49 | Credit for child and dependent care expenses. Attach Form 2441 | 49 | | | | | | 50 | Education credits from Form 8863, line 19 . . . . . . . . . . . . . . . . | 50 | | | | | | 51 | Retirement savings contributions credit. Attach Form 8880 . . . | 51 | | | | | | 52 | Child tax credit. Attach Schedule 8812, if required . . . . . . . . . . | 52 | | | | | | 53 | Residential energy credit. Attach Form 5695 . . . . . . . . . . . . . . | 53 | | | | | | 54 | | Other credits from Form: a 3800 b 8801 c | | | 54 | | | | | | 55 | Add lines 48 through 54. These are your total credits . . . . . . . . . . . . . . . . . . . . . . . . . . | 55 | | | | 56 | Subtract line 55 from line 47. If line 55 is more than line 47, enter -0- . . . . . . . . . . . . . | | 56 | | | | Other Taxes | 57 | Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | 57 | | | | 58 | Unreported social security and Medicare tax from Form: a 4137 b 8919 . . . . . . . . . | | 58 | | | | 59 | Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required | 59 | | | | 60a | Household employment taxes from Schedule H . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | 60a | | | | b | First-time homebuyer credit repayment. Attach Form 5405 if required . . . . . . . . . . . . . . | | 60b | | | | 61 | Health care: individual responsibility (see instructions) | Full-year coverage | | 61 | | | | 62 | Taxes from: a Form 8959 b Form 8960 c Instructions; enter code(s) _ _ _ _ _ _ | | 62 | | | | 63 | Add lines 56 through 62. This is your total tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | 63 | | | | Payments | 64 | Federal income tax withheld from Forms W-2 and 1099 . . . . . | 64 | | | | | | | If you have a qualifying child, attach Schedule EIC. | 65 | 2016 estimated tax payments and amount applied from 2015 return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 65 | | | | 66a | Earned income credit (EIC) . . . . . . . . . . . . . . . . . . . . . . . . | 66a | | | | b | Nontaxable combat pay election . . . . | 66b | | | | | | | 67 | Additional child tax credit. Attach Schedule 8812 . . . . . . . . . . . | 67 | | | | | 68 | American opportunity credit from Form 8863, line 8 . . . . . . . . | 68 | | | | | 69 | Net premium tax credit. Attach Form 8962 . . . . . . . . . . . . . . | 69 | | | | | 70 | Amount paid with request for extension to file . . . . . . . . . . . | 70 | | | | | 71 | Excess social security and tier 1 RRTA tax withheld . . . . . . . . . | 71 | | | | | 72 | Credit for federal tax on fuels. Attach Form 4136 . . . . . . . . . . | 72 | | | | | 73 | Credits from Form: a 2439 b Reserved c Reserved d _ | 73 | | | | | 74 | Add lines 64, 65, 66a, and 67 through 73. These are your total payments . . . . . . . . . . | | 74 | | | | Refund | 75 | If line 74 is more than line 63, subtract line 63 from line 74. This is the amount you overpaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 75 | | | | | 76a | Amount of line 75 you want refunded to you. If Form 8888 is attached, check here | | 76a | | | | Direct deposit? See instructions. | b | | Routing number | X | X | X | X | X | X | X | X | X | | c Type: Checking Savings | | | | | | d | | Account number | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X | | | | 77 | Amount of line 75 you want applied to your 2017 estimated tax | 77 | | | | | Amount You Owe | 78 | Amount you owe. Subtract line 74 from line 63. For details on how to pay, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | 78 | | | 79 | Estimated tax penalty (see instructions) . . . . . . . . . . . . . . . . . | 79 | | | | | Third Party Designee | | Do you want to allow another person to discuss this return with the IRS (see instructions)? Yes. Complete below. No | | Designee's name | | Phone no. | | Personal identification number (PIN) | | | Sign Here Joint return? See instructions. Keep a copy for your records. | | Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. | | Your signature | Date | Your occupation MANAGER | Daytime phone number | | Spouse's signature. If a joint return, bothmust sign. | Date | Spouse's occupation REALTOR | If the IRS sent you an Identity Protection PIN, enter it here (see inst.) | | Paid Preparer Use Only | | Print/Type preparer's name | Preparer's signature | Date | Check if self-employed | PTIN | | Firm's name | Firm's EIN | | Firm's address | Phone no. | | KIA | www.irs.gov/form1040 | Form 1040 (2016) | |
