Question

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 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 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:

Paid 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 Freida’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. 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 Tax Rate Schedule provided. Do not use the Tax Tables.

I NEED HELP WITH FORM 1040 LINES 7a THROUGH 16, & THE QUALIFIED DIVIDENDS AND CAPITAL GAINS TAX WORKSHEET FORM LINES 1, & 24-27

Answer 1

Your asked question is here..

There is a sense in which your 1040 Line 43 Taxable Income number is misleading. Your 1040 Line 43 Taxable Income actually has hidden within it your qualified dividends and long-term capital gains, which are taxed at a different rate. So lines 1-7 of this worksheet are figuring what is your total qualified income (line 6) and your total ordinary income (line 7), so they can be taxed at their different rates.

Qualified Income is the sum of long-term capital gains and qualified dividends minus anything you decided to take as income on Form 4952 (don’t do that).

Ordinary Income is then everything leftover, which is Taxable Income minus Qualified Income.

Lines 24: Income Tax

Line 24 is where you put your income tax owed. There is no worksheet for this. You have to tax your total ordinary income (line 7) through the income tax brackets.

Lines 25-27: Total Tax

Line 25 adds together your 15% bracket tax (line 21), your 20% bracket tax (line 23), and your income tax (line 24).

This is almost always your tax.

There’s a sidestep though where in line 26, they ask you to tax your total taxable income through the income tax brackets (again no worksheet) to see if it is lower. If it is lower, you get to keep this tax amount.

Line 27 is then your Tax to put on 1040 Line 44.

✓I am so glad you asked for help when you needed it.