2019 TAX 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: a. 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. b. 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. c. 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 Wages, tips, other compensation $74,000 $86,000 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: 1 2 382 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 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 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%. 600 Form 2019 OMB No. 1545-0074 IRS Use Only Department of the Treasury-Internal Revenue Service (99) 1040 U.S. Individual Income Tax Return Filing Status Married filing jointly Your first name and middle initial Last name Daniel B. Butler If joint return, spouse's first name and middle initial Last name Freida C. Butler Apt. no. Home address (number and street). If you have a P.O. box, see instructions. 625 Oak Street Your social security number 111-11-1112 Spouse's social security number 123-45-6780 Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 to go to this fund. Checking a box below will not change your tax or refund. None City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below (see instructions). Corbin, KY 40701 Foreign country name Foreign province/state/county Foreign postal code If more than four dependents, see instructions and here Standard Deduction Someone can claim: None You: None (2) Social security number (3) Relationship to you Dependents (see instructions): (1) First name Last name (4) if qualifies for (see instructions): Child tax credit Credit for other dependents No Yes Gina Butler 123-45-6788 Child Willie Butler 123-45-6787 Child No Yes 1 Wages, salaries, tips, etc. Attach Form(s) W-2. 1 160,000 2b 1,982 3b 4,200 b Taxable interest. Attach Sch. B 2a Tax-exempt interest .. 2a 900 if required b Ordinary dividends. Attach 3a Qualified dividends ... 4,200 Sch. B if required 4a IRA distributions ..... 4a b Taxable amount c Pensions and annuities 4c d Taxable amount 5a Social security benefits 5a b Taxable amount. Capital gain or loss). Attach Schedule D if required. If not required, check here ... 4b 4d Standard Deduction for- Single or Married filing separately, $12,200 Married filing jointly or Qualifying widow(er), $24,400 Head of household, 5b 6 O 6 7a Other income from Schedule 1, line 9..... 7 7,000 b Add lines 1, 2b, 3b, 46, 40, 55, 6, and 7a. This is your total income 7b 173,182 8a Adiustments to income from Schedule 1. line 22 8a 1nr 8b 173,182 9 b Subtract line 8a from line 76. This is your adjusted gross income Standard deduction or itemized deductions (from Schedule A) ...... 10 Qualified business income deduction. Attach Form 8995 or Form 8995-A.... 10 24,400 11a Add lines 9 and 10... 11a 24,400 b Taxable income. Subtract line 11a from line 8b. If zero or less, enter -o-. 11b 148,782 re, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Form 1040 (2019) 111-11-1112 Page 2 Daniel B. and Freida C. Butler 12a Tax (see inst.) Check if any from Form(s): 1 8814 2 a 4972 30 12a 24,155 b Add Schedule 2, line 3, and line 12a and enter the total 12b 32,555 x 13a Child tax credit or credit for other dependents. 13a 1,000 b Add Schedule 3, line 7, and line 13a and enter the total V 13b 174,182 x 14 Subtract line 13b from line 12b. If zero or less, enter-O- 14 0 15 Other taxes, including self-employment tax, from Schedule 2, line 10 15 16 Add lines 14 and 15. This is your total tax.. 16 148,782 x 17 Federal income tax withheld from Forms W-2 and 1099 17 18a 18 Other payments and refundable credits: .. a Earned income credit (EIC).... b Additional child tax credit. Attach Schedule 8812. c American opportunity credit from Form 8863, line 8 18b 18C 18d d Schedule 3, line 14. e Add lines 18a through 18d. These are your total other payments and refundable credits 18e 19 v Add lines 17 and 18e. These are your total payments. 19 20 If line 19 is more than line 16, subtract line 16 from line 19. This is the amount you overpaid. 21a Amount of line 20 you want refunded to you. If Form 8888 is attached, check here 21a 20 b Routing number c Type: Checking O Savings d Account number 22 Amount of line 20 you want applied to your 2020 estimated tax. 22 1 1 2a 3 3 Part I Additional Income 1 Taxable refunds, credits, or offsets of state and local income taxes 2a Alimony received .. b Date of original divorce or separation agreement (see instructions) Business income or loss). Attach Schedule C... Other gains or losses). Attach Form 4797 ... Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E Farm income or (loss). Attach Schedule F. 7 Unemployment compensation ... Other income. List type and amount 4 4 5 UT 6 6 7 8 8 00 I] 9 Combine lines 1 through 8. Enter here and on Form 1040 or 1040-SR, line 7a. 9 9 8 9 10 Part II Other Payments and Refundable Credits 8 2019 estimated tax payments and amount applied from 2018 return ... 9 Net premium tax credit. Attach Form 8962.. 10 Amount paid with request for extension to file (see instructions). 11 Excess social security and tier 1 RRTA tax withheld .. 12 Credit for federal tax on fuels. Attach Form 4136. 13 Credits from Form: a 2439 b a Reserved CD8885 do Add lines 8 through 13. Enter here and on Form 1040 or 1040-SR, line 18d 11 12 13 14 14 Part I Amount 1 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 Forms 1040 and 1040-SR, line 2b.) 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. N 2 Add the amounts on line 1 3 Excludable interest on series EE and I U.S. savings bonds issued after 1989. Attach Form 8815 Subtract line 3 from line 2. Enter the result here and on Form 1040 or 1040-SR, line 2b 3 4 4 Part II 5 List name of payer Ordinary Dividends (See instructions and the instructions for Form 1040 or 1040- SR, line 3b.) 5 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 on that form. 6 Add the amounts on line 5. Enter the total here and on Form 1040 or 1040-SR, line 3b 6 1. Enter the amount from Form 1040 or 1040-SR, line 11b. However, if you are filing Form 2555 or 2555-EZ (relating to foreign earned income), enter the amount from line 3 of the Foreign Earned Income Tax Worksheet (Taxable income). 2. Enter the amount from Form 1040, line 3a* 2. 1. 3. 3. Are you filing Schedule D?* Yes Enter the smaller of line 15 or 16 of Schedule D. If either line 15 or line 16 is blank or a loss, enter - - No Enter the amount from Form 1040 or 1040-SR, line 6. 4. Add lines 2 and 3. 4. 5. If filing Form 4952 (used to figure investment interest expense deduction), enter any amount from line 4g of that form. Otherwise, enter -o- . 6. Subtract line 5 from line 4. If zero or less, enter-O- 5. 6. 7. Subtract line 6 from line 1. If zero or less, enter -O-. 7. 8. Enter: $39,375 if single or married filing separately, $78,750 if married filing jointly or qualifying widow(er), 8 8. $52,750 if head of household. 9. Enter the smaller of line 1 or line 8 9. 10. Enter the smaller of line 7 or line 9 10. 11. Subtract line 10 from line 9. This amount is taxed at 0% 11. 12. Enter the smaller of line 1 or line 6 Ild... 12. 13. Enter the amount from line 11 . 13. 14. Subtract line 13 from line 12 14. 15. Enter: $434,550 if single, $244,425 if married filing separately, 15. $488,850 if married filing jointly or qualifying widow(er), $461,700 if head of household. 16. Enter the smaller of line 1 or line 15 16. 17. Add lines 7 and 11. 17. DOO) 18. Subtract line 17 from line 16. If zero or less, enter -O- 18. 19. Enter the smaller of line 14 or line 18 19. 20. Multiply line 19 by 15% (0.15). 20. 21. Add lines 11 and 19. 21. 22. Subtract line 21 from line 12.. 22. 23. Multiply line 22 by 20% (0.20). 23. 24. Figure the tax on the amount on line 7. If the amount on line 7 is less than $100,000, use the Tax Table to figure the tax. If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet ... 25. Add lines 20, 23, and 24. 24. TORE 25. 26. 26. Figure the tax on the amount on line 1. If the amount on line 1 is less than $100,000, use the Tax Table to figure the tax. If the amount on line 1 is $100,000 or more, use the Tax Computation Worksheet ...... 27. Tax on all taxable income. Enter the smaller of line 25 or 26. Also include this amount on the entry space on Form 1040 or 1040-SR, line 12a. If you are filing Form 2555, don't enter this amount on the entry space on Form 1040 or 1040-SR, line 12a. Instead, enter it on line 4 of the Foreign Earned Income Tax Worksheet ... 27. If you are filing Form 2555 or 2555-EZ, see the footnote in the Foreign Earned Income Tax Worksheet before completing this line. You asked me to estimate your after-tax income under the assumption that Dan will work only halftime next year. The reduction in Dan's pay will be partially offset by a $ estimated increase in the amount Freida will earn. This net $ reduction in salary and wages will also result in a decrease in your Kentucky income tax, Social Security tax, and Medicare tax. The net reduction in your after-tax cash flow will be approximately The calculations are presented below: Taxable Income Cash Flow Decrease in salary and other earned income ($ ($ Decrease in Social Security and Medicare tax Decrease in Kentucky income tax 3 Decrease in Federal taxable income ($ Decrease in Federal income tax After-tax decrease in cash flow ($