• This problem is for the 2018 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 123-45-6789. Dan was born on January 15, 1967, and Freida was born on August 20, 1968.

During 2018, 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, 2018, has no income of her own and for 2018 did not file a joint return with her husband, Casey, who earned $10,600 during 2018. Gina's Social Security number is 123-45-6788.

• Sam, their son, age 20, who had gross income of $6,300 in 2018, dropped out of college in October 2018. He had graduated from high school in May 2018. 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, 2018, and will be paid a commission of $3,100 (not included in the $86,000 reported on the W2) on the January 10, 2019 closing date.

Other income (as reported on 1099 Forms) for 2018 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, 2018. The CD was purchased on October 1, 2016, 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 2018 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 2018. Dan and Freida do not wish to contribute to the Presidential Election Campaign. The Kentucky income tax rate is 4%.

Required:

Determine the Federal income tax for 2018 for Dan and Freida on a joint return by providing the following information that would be reported on Form 1040, Schedule A, Schedule B and Schedule E.

• Assume any qualified dividends at taxed at 15%

• Enter all amounts as positive numbers.

• If an 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.

1040 2018 Department of the Treasury - Internal Revenue Service (99) U.S. Individual Income Tax Return OMB No. 1545-0074 IRS Use Only-Do not write or staple in this space. Filing status: Single Married filing jointly Married filing separately Head of household O Qualifying widow(er) Your first name and initial Last name Your social security number You were born before January 2, 1954 Your standard deduction: Someone can claim you as a dependent If joint return, spouse's first name and initial Last name You are blind Spouse's social security number Spouse standard deduction: Someone can claim your spouse as a dependent Spouse was born before January 2, 1954 Full-year health care coverage Spouse is blind Spouse itemizes on a separate return or you were dual-status alien or exempt (see inst.) Home address (number and street). If you have a P.O. box, see instructions. Apt. no. Presidential Election Campaign (see inst.) You Spouse City, town or post office, state, and ZIP code. If you have a foreign address, attach Schedule 6. If more than four dependents, see inst, and here Dependents (see instructions): (2) Social security number (3) Relationship to you (4) if qualifies for see inst.): (1) First name Last name Child tax credit Credit for other dependents 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 taxpayer) is based on all information of which preparer has any knowledge. Here Your signature Date Your occupation If the IRS sent you an Identity Protection Joint return? PIN, enter it See instructions. here (see inst.) Keep a copy for Spouse's signature. If a joint return, both must sign. Date Spouse's occupation If the IRS sent you an Identity Protection PIN, enter it your records. here (see inst.) Preparer's name Preparer's signature PTIN Firm's EIN Check if: Paid 3rd Party Designee Preparer Firm's name Phone no. Use Only Self-employed Firm's address For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11320B Form 1040 (2018) Page 2 1 2b Altach Forms) W-2. Also attach Formis) W-2G and 3a 3b 4b 5b 6 189 8 10 Married filing widower) 11 12 12 Form 1040 (2018) 1 Wages, salaries, tips, etc. Attach Form(s) W-2 2a Tax-exempt interest. 2a b Taxable interest 3a Qualified dividends. b Ordinary dividends 1099-R if tax was 4a IRAs, pensions, and annuities 4a b Taxable amount withheld 5a Social security benefits 5a b Taxable amount 6 Total income. Add lines 1 through 5. Add any amount from Schedule 1, line 22 7 Adjusted gross income. If you have no adjustments to income, enter the amount from line 6; otherwise, Standard subtract Schedule 1, line 36, from line 6 Deduction for 8 Standard deduction or itemized deductions (from Schedule A) - Single or married fling separately, 9 Qualified business income deduction (see instructions). $12,000 10 Taxable income. Subtract lines 8 and 9 from line 7. If zero or less, enter-O- jointly or Qualitying 11 a Tax (see inst.) _(check if any from: 1 Formis) 88142 Form 4972 3 $24,000 b Add any amount from Schedule 2 and check here a Chid tax credit/credit for other dependents Add any amount from Schedule 3 and check here Subtract line 12 from line 11. If zero or less, enter-O- - If you checked Other taxes. Attach Schedule 4. any box under Total tax. Add lines 13 and 14 see instructions. Federal income tax withheld from Forms W-2 and 1099 Refundable credits: a EIC (see inst.) b Sch. 8812 c Form 8863 Add any amount from Schedule 5 18 Add lines 16 and 17. These are your total payments Refund 19 If line 18 is more than line 15, subtract line 15 from line 18. This is the amount you overpaid 20a Amount of line 19 you want refunded to you. If Form 8888 is attached, check here Direct deposit? Routing number c Type: Checking Savings See instructions Account number 21 Amount of line 19 you want applied to your 2019 estimated tax 21 Amount You Owe 22 Amount you owe. Subtract line 18 from line 15. For details on how to pay, see instructions Estimated tax penalty (see instructions). Go to www.irs.gov/Form 1040 for instructions and the latest information. Head of household, $18,000 13 13 14 14 15 15 Standard deduction, 16 16 17 17 18 19 202 22 23 23 Forn 1040 (2018) SCHEDULE A Itemized Deductions OMB No 1545-0074 (Form 1040) Go to www.irs.gov/Schedule for instructions and the latest information. 2018 Expert of the Tray Altach to Form 1040. In Bet Service Caution: If you are claiming a not qualified disaster loss on Form 4634. so the instructions for line 16 Attachment Source No 07 Name shown on Form 1090 Your social security number Modical Caution: Do not include expenses reimbursed or paid by others. and 1 Medical and dental expenses (see instructions). 1 Dontal 2 Enter amount from Form 1040, line 72 Expenses 3 Multiply line 2 by 7.5% (0.075)....... 3 4 Subtract line 3 from line 1. If lino 3 is more than line 1. entor -0. Taxos You 5 State and local taxes. Paid a State and local income taxes or general sales taxes. You may include other income taxes or general sales taxes on line 50 but not both. If you elect to include general sales taxes instead of income taxes, check this box 5a b State and local real estate taxes (see instructions) Sb c State and local personal property taxes. 5c dAdd lines Sa through 5c 50 Enter the smaller of line 5d or $10,000 ($5,000 if married filing separately) 50 6 Other taxes. List type and amount 7 Add lines 5e and 6 Interest You 8 Home mortgage interest and points. If you didn't use all of your Paid home mortgage loan(s) to buy, build, or improve your home, Caution You see instructions and check this box..... 0 mort de come a Home mortgage interest and points reported to you on Form imited (see instructions 1098 8a b Home mortgage interest not reported to you on Form 1098.1 paid to the person from whom you bought the home, seo instructions and show that person's name, identifying no., and address 8b c Points not reported to you on Form 1098. See instructions for special rules 80 d Reserved 80 Add lines 8a through 8c 80 9 Investment interest. Attach Form 4952 required. Seo instructions 9 10 Add lines 8e and 9 10 Gifts to 11 Gifts by cash or check. If you made any gift of $250 or more, Charity soo instructions 11 12 Other than by cash or check. If any gift of $250 or more, see ga instructions. You must attach Form 8283 if over $500 12 13 Carryover from prior year 13 sotrubom 14 Add lines 11 through 13 14 Casualty and 15 Casualty and theft lossles) from a federally declared disaster (other than net qualified Theft Losses disaster losses). Attach Form 4684 and enter the amount from line 18 of that for See Instructions 15 16 Other-from list in instructions. List type and amount Itemized Deductions 16 Total 17 Add the amounts in the far right column for lines 4 through 16. Also, enter this amount on Itomized Form 1040, line 8 17 Deductions 18 If you elect to temize deductions even though they are less than your standard deduction, check here For Paperwork Reduction Act Notice, see the Instructions for Form 1040, Cat No 17145C . Schedule A Form 1040) 2018 Other OMB No 1545-0074 SCHEDULE B [Form 1040) Interest and Ordinary Dividends Go to www.irs.gov/ Schedule for instructions and the latest information Attach to Form 1040. 2018 Department of the Treasury Internal Revenue Services Name shown on return Attachment Sequence No. 08 Your social security number Part 1 1 Amount List name of payer. If any interest is from a seller-financed mortgage and the buyer used the property as a personal residence, see the instructions and list this interest first. Also, show that buyer's social security number and address Interest See instructions and the instructions for Form 1040, line 26.1 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 interest shown on that form. 2 Add the amounts on line 1 Excludable interest on series EE and I U.S. savings bonds issued after 1989. Attach Form 8815 3 4 Subtract line 3 from line 2. Enter the result here and on Form 1040, line 2b 4 Note: If line 4 is over $1,500, you must complete Part III. Amount Part II 5 List name of payer Ordinary Dividends See instructions and the instructions for Form 1040, line 3b.) 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 6 6 on that form. Add the amounts on line 5. Enter the total here and on Form 1040, line 3b Note: If line 8 is over $1,500, you must complete Part III Part III You must complete this part if you (a) had over $1.500 of taxable interest or ordinary dividends: (b) had a foreign account; or (c) received a distribution from, or were a grantor of, or a transferorto, a foreign trust. Yes No Foreign 7a At any time during 2018, did you have a financial interest in or signature authority over a financial Accounts account (such as a bank account, securities account, or brokerage account) located in a foreign country? See instructions. and Trusts If "Yes." are you required to file FinCEN Form 114. Report of Foreign Bank and Financial See instructions.) Accounts (FBAR), to report that financial interest or signature authority? See FinCEN Form 114 and its instructions for filing requirements and exceptions to those requirements. If you are required to file FinCEN Form 114, enter the name of the foreign country where the financial account is located 8 During 2018, did you receive a distribution from, or were you the grantor of, or transferor to, a foreign trust? If "Yes, you may have to file Form 3520. See instructions. For Paperwork Reduction Act Notice, see your tax return instructions. Cad. No. 17146 Schedule B Form 1040) 2015 SCHEDULE E (Form 1040) Department of the Treasury Internal Revenue Service Name(s shown on return Supplemental Income and Loss OMB No 1545-0074 (From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.) Attach to Form 1040, 1040NR, or Form 1041. Go to www.irs.gov/Schedule for instructions and the latest information. Attachment Sequence No. 13 Your social security number 2018 Part 1 Income or Loss From Rental Real Estate and Royalties Note: If you are in the business of renting personal property, use Schedule Cor C-EZ (see instructions. If you are an individual, report farm rental income or loss from Form 4835 on page 2, line 40 A Did you make any payments in 2018 that would require you to file Form(s) 1099? (see instructions) Yes No B If "Yes," did you or will you file required Forms 1099?... Yes No 1a Physical address of each property (street, city, state, ZIP code) A B 1b Type of Property 2 For each rental real estate property listed Fair Rental Personal Use QJV (from list below) above, report the number of fair rental and Days Days personal use days. Check the QJV box A only if you meet the requirements to file as A B a qualified joint venture. See instructions. B Type of Property: 1 Single Family Residence 3 Vacation/Short-Term Rental 5 Land 7 Self-Rental 2 Multi-Family Residence 4 Commercial 6 Royalties 8 Other (describe) Income: Properties: B 3 Rents received 3 4 Royalties received 4 Expenses: 5 Advertising 5 6 Auto and travel (see instructions) 6 7 Cleaning and maintenance 7 8 Commissions... 8 9 Insurance 9 10 Legal and other professional fees 10 11 Management fees 11 12 Mortgage interest paid to banks, etc. (see instructions) 12 13 Other interest 13 14 Repairs 14 15 Supplies 15 16 Taxes 16 17 Utilities 17 18 Depreciation expense or depletion 18 19 Other (list) 19 20 Total expenses. Add lines 5 through 19 20 21 Subtract line 20 from line 3 (rents) and/or 4 (royalties). If result is a (loss), see instructions to find out if you must file Form 6198 21 22 Deductible rental real estate loss after limitation, if any, on Form 8582 (see instructions) 22 23a Total of all amounts reported on line 3 for all rental properties 23a b Total of all amounts reported on line 4 for all royalty properties 23b c Total of all amounts reported on line 12 for all properties 23c d Total of all amounts reported on line 18 for all properties 23d e Total of all amounts reported on line 20 for all properties 23e 24 Income. Add positive amounts shown on line 21. Do not include any losses 24 25 Losses. Add royalty losses from line 21 and rental real estate losses from line 22. Enter total losses here 25 26 Total rental real estate and royalty income or (loss). Combine lines 24 and 25. Enter the result here. If Parts II, III, IV, and line 40 on page 2 do not apply to you, also enter this amount on Schedule 1 (Form 1040), line 17, or Form 1040NR, line 18. Otherwise, include this amount in the total on line 41 on page 2.. 26 For Paperwork Reduction Act Notice, see the separate instructions. Cat No. 11344 Schedule E Form 1040) 2018 Schedule E (Form 1040) 2018 Name shown on tur. Do not enter name and social security number it shown on the side Attachment Sequence No 13 Page 2 Your social security number Caution: The IRS compares amounts reported on your tax retum with amounts shown on Schedules K-1. Part II Income or Loss From Partnerships and S Corporations - Note: If you report a loss, receive a distribution, dispose of stock, or receive a loan repayment from an corporation, you must check the box incolumn (e) on line 28 and attach the required basis computation. If you report a loss from an at-risk activity for which any amount is not at risk, you must check the box in column (on line 23 and attach Form 6190 se instructions) 27 Are you reporting any loss not allowed in a prior year due to the at-risk, excess farm loss, or basis limitations, a prior year unallowed loss from a passive activity of that loss was not reported on Form 8582). or unreimbursed partnership expenses? If you answered "Yes. see instructions before completing this section Yes No Enter for el eck Nane Id Employer Check partnerships tel Check Identification for corporation partnership number basis computation amount is is required A B D Passive Income and Loss lal Passive loss allowed Passive income amach Form 3612 from Schedule Nonpassives trom Schedule K-1 Nonpassive Income and Loss Section 179 expense Nonpassive income deduction from Form 4562 from Behedule K-1 B D 29a Totals b Totals 30 Add columns (h) and (b) of line 23a. 31 Add columns (gl. and of line 29b. 32 Total partnership and S corporation income or loss). Combine lines 30 and 31 Part III Income or Loss From Estates and Trusts 33 30 31 32 ! Employer identification number A B Passive Income and Loss Passive deduction or loss lowed Gattach Form 82 required Passive income from Schedule K-1 Nonpassive Income and Loss Deduction or loss Other income from from Schedule K-1 Schedule K-1 34a Totals b Totals 35 Add columns (d) and (of line 34a 35 36 Add columns (c) and (c) of line 34b 36 37 Total estate and trust income or loss. Combine lines 35 and 36 37 Part IV Income or Loss From Real Estate Mortgage Investment Conduits (REMICs) - Residual Holder 38 Name Employer identification Es inclusion from Taxable income now le) income from number Schedules, line 2 from Schedules, line 1 Schedules line 3 39 Combine columns (d) and (c) only. Enter the result here and include in the total on line 41 below 39 Part V Summary 40 Net farm rental income or (loss) from Form 4835. Also, complete line 42 below 40 41 Total income or lose Combine lines 26.12.33.99 and 40. Enter the rest here and on Schedule 1 Form 1140. line 17. cr Form 1040, Ine 1841 42 Reconciliation of farming and fishing income. Enter your gross farming and fishing income reported on Form 4835, line 7: Schedule K-1 Form 1065), box 14. code B: Schedule K-1 Form 11205), box 17. code AC; and Schedule K-1 (Form 1041), box 14,code F see instructions) 43 Reconciliation for real estate professionals. If you were a real estate professional (see instructions, enter the net income or loss) you reported anywhere on Form 1040 or Form 1040NR from all rental real estate activities in which you materially participated under the passive activity loss rules 43 Schedule E (Form 1046 2018