Instructions Note: This problem is for the 2019 tax year. 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 111-11-1112, and Freida's is 123-45-6780. Dan was born on January 15, 1968, and Freida was born on August 20, 1969 During 2019, Dan and Frelda furnished over half of the total support of each of the following individuals, all of whom still live at home a. Gina, their daughter, age 22, a full-time student, who married on December 21, has no income of her own and did not file a joint return with her husband, Casey, who earned $10,600 during 2019. Gina's Social Security number is 123-45-6788. b. Willie, their son, age 19, graduated high school in May 2019. He is taking a leap year and will not begin college until 2020. He had gross income of $6,300 in 2019. Willie's Social Security number is 123-45-6787. c. 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 W]]], 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 W-2 forms provided by the employers is presented below. Dan and Freida use the cash method. Line Description Freida Wages, tips, other compensation $74,000 $86,000 Federal income tax withheld 11,000 12,400 State income tax withheld 2,960 3,440 Freida sold a house on December 30, 2019, and will be paid a commission of $3,100 (not included in the $86,000 reported on the W-2) on the January 10, 2020, closing date. Other income (as reported on 1099 Forms) for 2019 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 Dan 1 2 17 Interest on First Bank CD 382 The $382 from First Bank an original issue discount. Dan and Freida collected $16,000 on the First Bank CD that matured on September 30, 2019. The CD was purchased on October 1, 2017, for $14,995, and the yield to maturity was 3,3% Dan participated on a game show and won a cash prize of $7,000 In addition to the above information, Dan and Freida's itemized deductions Included the following: Pald on 2019 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 United Way 800 Sales tax from the sales tax table is $1,860. Dan and Freida made Federal estimated tax payments of $8,000. They have never owned or used any virtual currency, and they do not wish to contribute to the Presidential Election Campaign. The Kentucky income tax rate is 4%. Required: Compute Dan and Frelda's 2019 Federal income tax payable (or refund due). Use Form 1040 and Schedules 1, 3, B and the Qualified Dividends and Capital Gain Tax Worksheet to complete this tax return. If there is a tax overpayment, the Butlers would like a refund. 17 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 Tax Rate Schedule provided. Do not use the Tax Tables. Form 1040 Complete the Butler's Form 1040, Form Department of the Treasury - Internal Revenue Service (99) 2019 OMB No 1545-0074 IRS Use Only 1040 U.S. Individual Income Tax Return Filing Status Married filing jointly Your first name and middle initial Daniel B. Butler if joint return, spouse's first name and middle initial Freida C. Butler Last name Last name Home address (number and street). If you have a P.O. box, see instructions. Apt. no. 625 Oak Street City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below (see instructions) Corbin, KY 40701 Your social security number 111-11-1112 Spouse's social security number 123-45-6780 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. Nones Foreign country name Foreign province/State/county Foreign postal code If more than four dependents, see instructions and here Standard Deduction Someone can claim: None Age/Blindness You: None Spouse: None (2) Social security number (3) Relationship to you Dependents (see instructions): (1) First name Last name (4) if qualifies for (see instructions): Child tax credit Credit for other dependents Gina Butler 123-45-6788 Child NO Yes Willie Butler 123-45-6787 Child No Yes D 1 Wages, salaries, tips, etc. Attach Form(s) W-2. 1 86,000 x 2b 3b b Taxable interest. Attach Sch. B 2a Tax-exempt interest .. 2a If required b 3a Qualified dividends.. Ordinary dividends. Attach 3a Sch. B if required 4a IRA distributions ... 4a b Taxable amount c Pensions and annuities 4c d Taxable amount. 5a Social security benefits 5a b Taxable amount 6 Capital gain or loss). Attach Schedule D if required. If not required, check here 4b 4d 5b 6 Standard Deduction for Single or Married filing separately, $12,200 Married filing jointly or Qualifying widow(er), $24.400 Head of household, $18,350 If you checked any box under Standard Deduction, see instructions, 7a Other income from Schedule 1, line 9 7a 7b b Add lines 1, 26, 35, 46, 4, 5, 6, and 7a. This is your total income 8a Adjustments to income from Schedule 1, line 22.. Ba b Subtract line 8a from line 7b. This is your adjusted gross income Bb 9 Standard deduction or itemized deductions (from Schedule A). Qualified business income deduction. Attach Form 8995 or 10 Form 8995-A 10 11a Add lines 9 and 10 11a b Taxable income. Subtract line 11a from line Bb. If zero or less, entero. BAA For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. 11b Form 1040 (2019) Form 1040 (2019) 111-11-1112 Daniel B. and Freida C. Butler 12a Tax (see inst.) Check if any from Form(s): 1 8614 Page 2 2 04972 30 12a 12b b Add Schedule 2, line 3, and line 12a and enter the total 13a Child tax credit or credit for other dependents. b Add Schedule 3, line 7, and line 13a and enter the total 13a 13b 14 Subtract line 13b from line 12b. If zero or less, enter -0- 15 15 Other taxes, including self-employment tax, from Schedule 2, line 10 Add lines 14 and 15. This is your total tax 16 16 17 Federal income tax withheld from Forms W-2 and 1099 17 If you have a qualifying child attach Sch. EIC If you have nontaxable combat pay, see instructions 18 Other payments and refundable credits: Earned Income credit (EIC) b Additional child tax credit. Attach Schedule 8812 18a 18b 18c American opportunity credit from Form 8863, line 8 d Schedule 3, line 14 180 e Add lines 18 through 18d. These are your total other payments and refundable . Add lines 18a through 18d. These are your total other payments and refundable credits. 18e 20 DO DO 21a tax 23 23 19 Add lines 17 and 18e. These are your total payments 19 Refund If line 19 is more than line 16, subtract line 16 from line 19. This is the amount you overpaid 20 21a Amount of line 20 you want refunded to you. If Form 8888 is attached, check here Direct deposit? Routing number c Type: Checking Savings See instructions d Account number 22 Amount of line 20 you want applied to your 2020 estimated 22 Amount Amount you owe. Subtract line 19 from line 16. For details on how to pay, sea Instructions. You Owe 24 Estimated tax penalty (see Instructions) Third Party Do you want to allow another person (ather than your paid preparer) to discuss this return with Yes. Complete below. the IRS? See instructions Designee Designee's (Other than Phone Personal identification paid preparer) Sign 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 complete. Declaration of preparer (other than Here taxpayer) is based on all information of which preparer has any knowledge, Your signature Date Your occupation If the IRS sent you an Identity Protection PIN, enter it here Joint return? (see Inst.) 24 No number (PIN) name no. Fon Schedule 1 Complete Butler's Schedule 1 below for 2019. SCHEDULE 1 OMB No 1545-0074 (Form 1040 or 1040-SR) Additional Income and Adjustments to Income 2019 Department of the Treasury Attach to Form 1040 or 1040-SR. Attachment Internal Revenue Service Go to www.irs.gov/Form 1040 for instructions and the latest information. Sequence No. 01 Name(s) shown on Form 1040 or 1040-SR Your social security number Daniel B. and Freida C. Butler 111-11-1112 At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial Interest in any virtual Yes No currency? Part I Additional Income 1 Taxable refunds, credits, or offsets of state and local income taxes 1 2a Alimony received 2a b Date of original divorce or separation agreement (see instructions) 3 Business income or loss). Attach Schedule C. 3 4 Other gains or losses). Attach Form 4797. 5 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E I. 5 6 Farm income or (loss). Attach Schedule F. 6 4 7 Unemployment compensation .. 7 8 Other income. List type and amount Prize 8 Combine lines 1 through 8. Enter here and on Form 1040 or 1040-SR, line 7a ... 9 13 Moving expenses for members of the Armed Forces. Attach Form 3903 13 14 Deductible part of self-employment tax. Attach Schedule se 14 15 Self-employed SEP, SIMPLE, and qualified plans 15 16 Self-employed health insurance deduction 16 17 Penalty on early withdrawal of savings... 17 18a 18a Alimony paid. b Recipient's SSN. c Date of original divorce or separation agreement (see instructions) 19 IRA deduction 19 20 20 Student loan interest deduction 21 21 Tuition and fees. Attach Form 8917 22 Add lines 10 through 21. These are your adjustments to income. Enter here and on Form 1040 or 1040-SR, line 8a. 22 BAA For Paperwork Reduction Act Notice, see your tax return instructions. Schedule 1 (Form 1040 or 1040-SR) 2019 4 SCHEDULE 3 OMB No. 1545-0074 (Form 1040 or 1040-SR) Additional Credits and Payments 2019 Department of the Treasury Attach to Form 1040 or 1040-SR. Attachment Internal Revenue Service Go to www.lrs.gov/Form1040 for instructions and the latest information. Sequence No. 03 Name(s) shown on Form 1040 or 1040-SR Your social security number Daniel B. and Freida C. Butler 111-11-1112 Part I Nonrefundable Credits 1 Foreign tax credit. Attach Form 1116 If required. 1 2 Credit for child and dependent care expenses. Attach Form 2441 2 3 Education credits from Form 8863, line 19 3 4 Retirement savings contributions credit. Attach Form 8880 5 Residential energy credit. Attach Form 5695 ... 5 6 Other credits from Form: a 3800 b 8801 CO 7 Add lines 1 through 6. Enter here and include on Form 1040 or 1040-SR, line 13 7 Part II Other Payments and Refundable Credits 8 2019 estimated tax payments and amount applied from 2018 return 8 9 Net premium tax credit. Attach Form 8962.. I 10 Amount paid with request for extension to file (see instructions) 10 11 Excess social security and tier 1 RRTA tax withheld. 11 12 Credit for federal tax on fuels. Attach Form 4136. 12 13 Credits from Form: a 0 2439 b Reserved CO 8885 do 13 14 Add lines 8 through 13. Enter here and on Form 1040 or 1040-SR, line 18d 14 6 9 un instructions Schedule (Form 1nan nr 1nan-SR 2019 Schedule B Complete the Butler's Schedule B for 2019. SCHEDULE B OMB No. 1545-0074 Interest and Ordinary Dividends (Form 1040 or 1040-SR) 2019 Department of the Treasury Go to www.irs.gov/Schedule for instructions and the latest Information. Attachment Internal Revenue Service (99) Attach to Form 1040 or 1040-SR. Sequence No. 08 Name(s) shown on return Your social security number Daniel B. and Freida C. Butler 111-11-1112 Part 1 1 List name of payer. If any interest is from a seller-financed mortgage and the buyer Amount used the property as a personal residence, see the instructions and list this interest Interest first. Also, show that buyer's social security number and address FIRST BANK (See Instructions and the instructions for SECOND BANK Forms 1040 and 1040-SR, line 2b.) 1 Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm's name as the payer and enter the total N 2 Add the amounts on line 1 3 Excludable interest on series EE and I U.S. savings bonds issued after 1989. Attach Form 8815 3 Interest shown on 3 . ++++ and enter the total interest shown on that form. 4 Form 8815 4 Subtract line 3 from line 2. Enter the result here and on Form 1040 or 1040-SR, line 2b Note: If line 4 is over $1,500, you must complete Part III. List name of payer Amount Part II 5 SECOND BANK X Ordinary Dividends (See Instructions and the instructions for Form 1040 or 1040- SR, line 3b.) 5 Note: If you received a Form 1099-DIV or substitute statement from a brokerage firm, list the firm's name as the payer and enter the ordinary dividends shown on that form. 6 Add the amounts on line 5. Enter the total here and on Form 1040 or 1040-SR, line 3b 6 Note: If line 6 is over $1,500, you must complete Part III. nur 1 500 of fayahle interest or ordinary dividends; (b) had Qualified Dividends and Capital Gain Tax Worksheet-Line 12a Keep for Your Records Before you begin: See the earlier instructions for line 12a to see if you can use this worksheet to figure your tax. Before completing this worksheet, complete Form 1040 through line 11b. If you do not have to file Schedule and you received capital gain distributions, be sure you checked the box on Form 1040 or 1040-SR, line 6. 1. Enter the amount from Form 1040 or 1040-SR, line 11b. However, if you are filing Form 2555 or 2555-EZ (relating to foreign earned income), enter the amount from line 3 the Foreign Earned Income Tax Worksheet (Taxable income) 2. Enter the amount from Form 1040, line 3a* 2. 1. 3. 3. Are you filing Schedule D?* Yes Enter the smaller of line 15 or 16 of Schedule D. If either line 15 or line 16 is blank or a loss, enter-O- Enter the amount from Form 1040 or 1040-SR, line 6. 4. 4. Add lines 2 and 3 000 5. If filing Form 4952 (used to figure investment interest expense deduction), enter any amount from line 4g of that form. Otherwise, enter -0... 5. 6. 6. Subtract line 5 from line 4. If zero or less, enter -0- 7. 7. Subtract line 6 from line 1. If zero or less, enter-O- 8. Enter: $39,375 if single or married filing separately, $78,750 if married filing Jointly or qualifying widow(er), 8 $52,750 if head of household 9. Enter the smaller of line 1 or line 8.... 9. 10. 11. 10. Enter the smaller of line 7 or line 9 11. Subtract line 10 from line 9. This amount is taxed at 0% 12. Enter the smaller of line 1 or line 6. 13. Enter the amount from line 11 . 12. 13. 14. Subtract line 13 from line 12 14. 15. Enter: $434,550 if single, $244,425 if married filing separately, 15. $488,850 if married filing jointly or qualifying widow(er), $461,700 if head of household 16. Enter the smaller of line 1 or line 15. 116. 17. 17. Add lines 7 and 11 18. Subtract line 17 from line 16. If zero or less, enter - - 19. Enter the smaller of line 14 or line 18... 18. 19. 20. Multiply line 19 by 15% (0.15). 20. BE 23. 24. 21. Add lines 11 and 19. 21. 22. Subtract line 21 from line 12 22. 23. Multiply line 22 by 20% (0.20) 24. Figure the tax on the amount on line 7. If the amount on line 7 is less than $100,000, use the Tax Table to figure the tax. If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet. 25. Add lines 20, 23, and 24 26. Figure the tax on the amount on line 1. If the amount on line 1 is less than $100,000, use the Tax Table to figure the tax. If the amount on line 1 is $100,000 or more, use the Tax Computation Worksheet ........... 27. Tax on all taxable income. Enter the smaller of line 25 or 26. Also include this amount on the entry space on Form 1040 or 1040-SR, line 12a. If you are filing Form 2555, don't enter this amount on the entry space on Form 1040 or 1040-SR, line 122. Instead, enter it on line 4 of the Foreign Earned Income Tax Worksheet. 25. 26. 27. If you are filing Form 2555 or 2555-EZ, see the footnote in the Foreign Earned Income Tax Worksheet before completing this line. 2019 Tax Rate Schedules Single-Schedule X Head of household-Schedule z of the If taxable income is: Over- of the amount over But not over If taxable income is: Over- amount But not over- The tax is: The tax is: over- $0 $ 9,700 ...... 10% $0 $0 $ 13,850 ...... 10% $0 $ 1,385.00 + 12% 52,850 84,200 9,700 39,475 $ 970.00 + 12% 9,700 39,475 84,200 4,543.00 + 22% 39,475 84,200 160,725 14,382.50 + 24% 84,200 160,725 204,100 32,748.50 + 32% 160,725 204,100 510,300 46,628.50 + 35% 204,100 510,300 153,798.50 + 37% 510,300 Married filing jointly or Qualifying widow(er)-Schedule Y-1 13,850 52,850 84,200 160,700 204,100 510,300 160,700 204,100 510,300 6,065.00 + 22% 12,962.00 + 24% 31,322.00 + 32% 45,210.00 + 35% 152,380.00 + 37% 13,850 52,850 84,200 160,700 204,100 510,300 If taxable income is: Over Married filing separately-Schedule Y-2 If taxable income is: But not Over- over- The tax is: of the amount over- $0 But not over- of the amount over $0 $ 19,400 $0 $ 9,700 ...... 10% $0 19,400 78,950 9,700 39,475 $ 970.00 + 12% 9,700 19,400 78,950 78,950 39,475 84,200 4,543.00 + 22% 39,475 The tax is: ...... 10% $ 1,940.00 + 12% 9,086.00 + 22% 28,765.00 + 24% 65,497.00 + 32% 93,257.00 + 35% 164.709.50 + 37% 168,400 168,400 168,400 321,450 408,200 612,350 160,725 14,382.50 + 24% 32,748.50 + 32% 84,200 160,725 204,100 84,200 160,725 321,450 321,450 204,100 306,175 408,200 408,200 46,628.50 + 35% 204,100 612 350 612.350 306 175 82.354.75 + 37% 306.175 Tax Planning and Sam Dan plans to reduce his work schedule and work only half-time for W))) in 2020. 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 2020. 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 2020, Assume that all other income and expense items will be approximately the same as they were in 2019 (including the prize winnings). Assume that Willie will be enrolled in college as a full-time student for the summer and fall semesters, No changes regarding Gina The $3,100 commission received on January 10, 2020, Is Included in the $90,000 income to be earned by Freida in 2020. The 22% 2019 marginal tax rate remains the same in 2020. Assume a payroll tax rate for FICA and Medicare of 7.65% and the Kentucky state income rate of 4%. Assume Interest income, dividend income, prize income and the standard deduction will be the same for 2020. Complete the following letter regarding whether the Butlers will have more or less disposable income (after Federal income tax) in 2020. Young, Nellen, Raabe, Hoffman, & Maloney, CPAS 5191 Natorp Boulevard Mason, OH 45040 WAVUNJU Corbin, KY 40701 Dear Dan and Freida You asked me to estimate your after-tax income under the assumption that Dan will work only halftime next year. The $ reduction in Dan's pay will be partially offset by a $ estimated increase in the amount Freida will earn. This net reduction in salary and wages will also result in a decrease in your Kentucky Income tax, Social Security tax, and Medicare tax. The net reduction in your after-tax cash flow will be approximately The calculations are presented below: Taxable Income Cash Flow Decrease in salary and other earned income Decrease in Social Security and Medicare tax (II Decrease in Kentucky Income tax Decrease in Federal taxable income 00 Decrease in Federal income tax After-tax decrease in cash flow If you have any further questions, please call me