Question

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, 1965, and Freida was born on August 20, 1966. During 2016, Dan and Freida 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, has no income of her own. Gina’s Social Security number is 123‐45‐6788.

b) Sam, their son, age 20, who had gross income of $6,300 in 2016. He graduated from high school in May 2016, Started College in August 2016, then dropped out of college in September 2016. Sam’s Social Security number is 123‐45‐6787.

c) Ben, their oldest son, age 26, is a full‐time graduate student with a 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 Dan$74,000 Freida $86,000

2. Federal income tax withheld Dan11,000 Freida 12,400 17

3. State income tax withheld Dan 2,960 Freida 3,440

Freida sold a house on December 30, 2016, and will be paid a commission of $3,100 (not included in the $86,000 reported on the W‐2) on the January 10, 2017 closing date.

Before marrying Freida, Dan was married and divorced to Sarah. Under the divorce agreement, Dan is to pay Sarah $500 per month. Dan paid Sarah $5,500 in 2016, his December alimony payment was not made until January of 2017. Sarah’s Social Security number is 123‐45‐6785 The Butlers also had (1) $1,600 in interest income from their savings account, (2) they sold ABC stock on 8/15/2016 for $10,000 (originally purchased for $4,000 on 1/15/2013), and (3) they sold XYZ stock on 10/15/2016 for $3,000 (originally purchased for $4,000 on 12/15/2015). Prepare the 2016 Federal income tax return for the Butlers’. You may work in groups no larger than 3 (i.e. 1, 2, or 3). Submit one tax return per group. Please submit (1) a cover page with a list of students who participated in the group project, (2) Form 1040, (3) calculation of Capital gain (including LT or ST), and (4) calculation of tax.

Answer 1

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