Question

57. 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 Freida furnished over half of the total support of each of the following individuals, all of whom still live at home:

    1. 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.

    2. 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.

    3. 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 W–2 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, 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
    Interest on First Bank CD	382

    The $382 from First Bank was 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:

    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%.

    Part 1—Tax Computation

    Compute Dan and Freida’s 2019 Federal income tax payable (or refund due). If you use tax forms for your computations, you will need Form 1040 and Schedules 1, 3, and B. Suggested software: ProConnect Tax Online.

    Part 2—Tax Planning

    Dan plans to reduce his work schedule and work only half-time for WJJJ 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. Will the Butlers have more or less disposable income (after Federal income tax) in 2020? Write a letter to the Butlers that contains your advice, and prepare a memo for the tax files.

Answer 1

Solution:

First Name : Daniel        :        Last Name :B. Butler    .       SSN : 111–11–1112

First Name:Freida                 Last Name :C. Butler     .        SSN : 123–45–6780

Home Address:

NO . 625 Oak Street in Corbin, KY 40701

Filing Status: Married filling Jointly

6 c) Exemptions

Dependants

First Name Last Name SSN Relatioship        

Gina Butler                       123–45–6788 Daughter

Sam                                 Butler                       123–45–6787.               Son

Ben                                  Butler                        123–45–6786.              Son

d Number of Dependants :3

Income:

7) Wages, salaries, tips, etc  =$160,000

8a)Interest and Ordinary Dividends

Interest on savings at Second Bank =1,600

Interest on First Bank CD $382

8b) City of Corbin bonds $900

9b)Qualified Dividends = $4,200

13) Capital gain=$1,005

17 partnership= $7,000.

21) House Commission = $ 3,100

22)Total Income = $178,187

39 b Itemized deductions upto $6,200

Kentucky income tax $ 700

Personal property tax paid $600

Real estate taxes paid $1,800

Cash contributions to the Boy Scouts $800

sales tax table is $1,860

Interest on home mortgage =$440

Total =$6,200

40)Line 22   - Line 39b=$167,527

Itemizied itemize their deductions is more than standard deductions

Other Taxes:

58) Medicare tax from Form $1,073+ $1,247=$$2,320

Payments :

64)Federal income tax withheld $11,000 + $12,400=$23,400

65) estimated tax payments  $8,000