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.

Answer 1

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Tax Computation
Gross income
Salary and commissions ($74,000 + $86,000) (Note 1)		$160,000
Interest income on certificate of deposit		$382
Interest income on Second Bank savings account (Note 2)		$1,600
Dividends on CSX stock (Note 3)		$4,200
Income from partnership (Note 4)		$7,000
Deductions for adjusted gross income		$0
Adjusted gross income		$173,182
Itemized deductions
State income tax (Note 5)	$7,100
Personal property tax	$600
Real estate tax	$1,800
Home mortgage interest	$4,900
Cash contributions	$800
Total itemized deductions	$15,200
Standard Deduction (Note 6)	$24400	$24400
Taxable income		$148,782
Tax liability (Note 7)		$24,155
Less: Tax withheld by employers ($12,400 + $11,000)		-$23,400
Estimated tax payments		-$8,000
Net tax payable (or refund due) for 2019		-$7,245

Notes:-
(1) The $3,100 commission for Freida is not included in her gross income until it is received in 2020.
(2) The $900 of interest on the City of Corbin bonds is excluded from gross income.
(3) The dividends of $4,200 on the CSX stock are included in Dan and Freida’s gross income.
(4) Dan’s share of the partnership profits is $7,000 (per the Schedule K–1 received). Therefore, he must include this amount in his gross income
(5) The state income tax paid of $7,100 ($2,960 + $3,440 + $700) exceeded the sales tax of $1,860 from the sales tax table.
(6) Dan and Freida’s Standard Deduction is $24,400
(7) The Butler’s tax liability is: $24,155
Tax on dividend income ($4,200 × 15%)	$630
Tax on other taxable income ($148,782 - $4200 = $144,582)
( 19400 *10% + 59550 * 12% + 65632 *22%	$23,525
	$24,155

The deduction for personal and dependency exemptions is suspended for tax years 2018 through 2025 by the Tax Cuts and Jobs Act. Although the exemption amount is zero