Instruct Note: This problem is for the 2020 tax year. Daniel B. Butler and his spouse Freida C. Butler 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, 1969, and Freida was born on August 20, 1970. During 2020, 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 2020. Gina's Social Security number is 123-45-6768. b. Willie, their son, age 19, graduated high school in May 2020. He is taking a leap year and will not begin college until 2021. He had gross income of $6,300 in 2020. 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 WII], Inc. (employer identification number 11-1iliili, 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 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, 2020, and will be paid a commission of $3,100 (not included in the $86,000 reported on the W-2) on the January 10, 2021, dosing date. Other income (as reported on 1099 Forms) for 2020 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 90 0 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, 2020. The CD was purchased on October 1, 2018, 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 induded the following: Paid on 2020 Kentucky income tax $700 Personal property tax paid 600 Real estate taxes paid 1,800 Interest on home mortgage (Corbin SBL] 4,900 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. For 2020, they received the correct amount of economic impact payments (2020 recovery credits). The Kentucky income tax rate is 4% Required: Compute Dan and Freida's 2020 Federal income tax payable (or refund due). Use Form 1040 and Schedules 1, 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.Form 1040 Complete the Butler's Form 1040. Department of the Treasury-Internal Revenue Service (90) 1040 U.S. Individual Income Tax Return 2020 OMB No. 1545-0074 IRS Use Only Filing Status Married filing jointly Your first name and middle initial Last name Your social security number Daniel Butler 111-11-1112 If joint return, spouse's first name and middle initial Last name Spouse's social security number Freida C Butler 23-45-6780 Home address (number and street). If you have a P.Q. box, see instructions. Apt. no. Presidential Election Campaign 625 Oak Street Check here if you, or your spouse ir City, town, or post office. If you have a foreign address, also complete State ZIP code filing jointly, want $3 to go to this spaces below. und. Checking a box below will not Corbin, KY 40701 change your tax or refund. None Foreign country name Foreign province/state/county Foreign postal code At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual No currency Standard Someone can claim: None Deduction You: None Age/ Blindness Spouse: None Dependents (see instructions): (2) Social security (3) Relationship (4) o 35a Direct deposit? b Routing number c Type: 0 Checking D Savings See instructions. d Account number 36 Amount of line 34 you want applied to your 2021 estimated tax . . . .SCHEDULE 1 OMB No. 1545-0074 (Form 1040) Additional Income and Adjustments to Income 2020 Department of the Treasury >Attach to Form 1040, 1040-SR, or 1040-NR. Attachment Internal Revenue Service Go to www.irs. gov/Form1040 for instructions and the latest information. Sequence No. 01 Name(s) shown on Form 1040, 1040-SR, or 1040-NR Your social security number Daniel and Freida C Butler 1i1-11-1112 Part I Additional Income 1 Taxable refunds, credits, or offsets of state and local income taxes . Alimony received . 2a b Date of original divorce or separation agreement (see instructions) 3 Business income or (loss). Attach Schedule C . Other gains or (losses). Attach Form 4797 . 5 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E . .. 6 Farm income or (loss). Attach Schedule F . . . 7 Unemployment compensation . Other income. List type and amount Prize 7,000 9 Combine lines 1 through &. Enter here and on Form 1040, 1040-SR, or 1040-NR, line B . . . . . . . . . . 9 7,000 Part II Adjustments to Income 10 Educator expenses . . . 10 11 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 . . . . . . . . . . . 11 12 Health savings account deduction. Attach Form 6889 . . 12 13 Moving expenses for members of the Armed Forces. Attach Form 3903 . 13 14 Deductible part of self-employment tax. Attach Schedule SE . .. 15 Self-employed SEP, SIMPLE, and qualified plans . . .. 15 16 Self-employed health insurance deduction . 16 17 Penalty on early withdrawal of savings . . 17 18a Alimony paid . b Recipient's SSN . . c Date of original divorce or separation agreement (see instructions] 19 TRA deduction . . . 19 20 Student loan interest deduction . 20 21 Tuition and fees deduction. Attach Form 8917 . . . 21 22 Add lines 10 through 21. These are your adjustments to income. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 103 . . BAA For Paperwork Reduction Act Notice, see your tax return instructions. Schedule 1 (Form 1040) 2020SCHEDULE B OMB No. 1545-0074 Interest and Ordinary Dividends (Form 1040) 2020 Department of the Treasury Go to www.irs.gov/Scheduled for instructions and the latest information. Attachment Internal Revenue Service (99) Attach to Form 1040 or 1040-SR. Sequence No. 08 Name(s) shown on return Your social security number Daniel and Freida C Butler 111-11-1117 Part I 1 List name of payer. If any interest is from a seller-financed mortgage and the buyer Amount used the property as a personal residence, see the instructions and list this interest Interest first. Also, show that buyer's social security number and address FIRST BANK (See instructions and 382 the instructions for SECOND BANK 1,600 Forms 1040 and 1040-SR, line 2b.} Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm's 2 Add the amounts on line 1 . 2 1,982 name as the payer and enter the total 3 Excludable interest on series EE and I U.S. savings bonds issued after 1969. Attach interest shown on Form 8815 . . 3 that form. Subtract line 3 from line 2. Enter the result here and on Form 1040 or 1040-SR. line 2b C 1,982 Note: If line 4 is over $1,500, you must complete Part III. Amount Part II 5 List name of payer CSX Ordinary 4,200 Dividends (See instructions and the instructions for Form 1040 or 1040- SR, line 3b.) 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 4,200 Note: If line 6 is over $1,500, you must complete Part III. Part III You must complete this part if you (a ) had over $1,500 of taxable interest or ordinary dividends; (b) had a foreign account; or (c) received a distribution from, or were a grantor of, or a transferor to, a foreign Yes No trust. Foreign 7a At any time during 2020, did you have a financial interest in or signature authority over a financial Accounts account (such as a bank account, securities account, or brokerage account) located in a foreign and Trusts country? See instructions . . .Qualified Dividends and Capital Gain Tax Worksheet-Line 16 Keep for Your Records Before you begin: See the earlier instructions for line 16 to see if you can use this worksheet to figure your tax. Before completing this worksheet, complete Form 1040 through line 15. If you do not have to file Schedule D and you received capital gain distributions, be sure you checked the box on Form 1040 or 1040-SR, line 7. 1. Enter the amount from Form 1040 or 1040-SR, line 15. 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) 148,382 2. Enter the amount from Form 1040, line 3a* . . - 2. 4,200 3. Are you filing Schedule D?* O Yes Enter the smaller of line 15 or 16 of Schedule D. Ir either line 15 or line 16 is blank or a loss, enter -D 0 O No Enter the amount from Form 1040 or 1040-SR, line 7. 4. Add lines 2 and 3 . 4,200 5. If filing Form 4952 (used to figure investment interest expense deduction), enter any amount from line 4g of that form. Otherwise, enter -0- . . . . ... O Y 6. Subtract line 5 from line 4. If zero or less, enter -0- . .. . . ... . . . .. .. 4,200 7. Subtract line 6 from line 1. If zero or less, enter -0- .. . . ... 7 144,182 3. Enter: $40,000 if single or married filing separately, $80,000 if married filing jointly or qualifying widow(er), - . . . . .. ... . 80,00 0 w $53,600 if head of household. 9. Enter the smaller of line 1 or line a . 80,000 10. Enter the smaller of line 7 or line 9 80,000 11. Subtract line 10 from line 9. This amount is taxed at 0% . . . 11 12. Enter the smaller of line 1 or line 6 . 12. 4,200 13. Enter the amount from line 11 . . 13 14. Subtract line 13 from line 12 . .. . . . . 14. 4,200 15. Enter: $441,450 if single, $248,300 if married filing separately, - . . . . .. .... 15 496,600 $496,600 if married filing jointly or qualifying widow(er), $469,050 if head of household. 16. Enter the smaller of line 1 or line 15 . 16 146,382 17. Add lines 7 and 11 . .. 17. 144,182 18. Subtract line 17 from line 16. If zero or less, enter -0- 4,200 19. Enter the smaller of line 14 or line 18 19 1,200 20. Multiply line 19 by 15% (0.15) . . . - - . . . . . 20 530 21. Add limes 11 and 19 . 21. 4,20020. Multiply line 19 by 15% (0.15) - . . . 20 630 21. Add lines 11 and 19 . . . 21. 4,200 22. Subtract line 21 from line 12 . . 22. O V 23. Multiply line 22 by 20% (D.20) . . . .. 23 O Y 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 24. 24,224 X 25. Add lines 20, 23, and 24 .. 25. 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 . . . 26 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 16. If you are filing Form 2555, don't enter this amount on the entry space on Form 1040 or 1040-SR, line 16. Instead, enter it on line 4 of the Foreign Earned Income Tax Worksheet . .. - . . . 27. If you are Wing Form 2555 or 2555-EZ, see the footnote in the Foreign Earned Income Tax Worksheet before completing this Me. Check My Work 2020 Tax Rate Schedules Use the 2020 Tax Rate Schedules to compute the tax. (Note: Because the tax rate schedules are used instead of the tax tables, the amount of tax computed may vary slightly from the amount listed in the tables.) 2020 Tax Rate Schedules Single-Schedule X Head of household-Schedule z If taxable of the If taxable of the income is: But not amount income is: But not amount Over- over- The tax is: over- Over- over- The tax is: over- $0 $ 9,875 . : . . . 10% $ 0 $ 0 $ 14,100 . . . . . . 10% 5 0 9.875 40,125 $ 987.50 + 12% 9,675 14,100 53,700 $ 1,410.00 + 12% 14,100 40,125 25,525 4,617.50 + 22% 10,125 53,700 85,500 6,162.00 + 22% 53,700 85,525 163,300 14,605.50 + 24% 85,525 85,500 163,300 13,158.00 + 24% 85,500 163,300 207,350 33,271.50 + 32% 163,300 163,300 207,350 31,830.00 + 32% 163,300 207,350 518,400 47,367.50 + 35% 207,350 207,350 516,400 45,926.00 + 35% 207,350 516,400 - . . .. . 156,235.00 + 37% 518,400 518,400 -. ... . 154,793.50 + 37% 518,400 Married filing jointly or Qualifying widow(er)-Schedule Y-1 Married filing separately-Schedule Y-2 If taxable of the If taxable of the income is: But not income is: But not amount Over- Over- The tax is: over- Over- over- The tax is: over $ 19,750 . . . . . 10% $0 $0 $ 9.875 . . . . .. 10% $0 19,750 30,250 $ 1,975.00 + 12% 19,750 9,875 40,125 $ 967.50 + 12% 9,875 BD.250 171,050 9,235 00 + 22% 80,250 40, 125 85,525 4,617.50 + 22% 40,125 171,050 326,600 29,211 00 + 24% 171,050 25,525 163,300 14,605.50 + 24% 85,525 326,600 414,700 66,543.00 + 32% 326,600 163,300 207,350 33,271.50 + 32% 163,300 414,700 622,050 94,735.00 + 35% 414,700 207,350 311,025 47,367.50 + 35% 207,350 622,050 - . . . . . 167,307.50 + 37% 622,050 311,025 - . . . . . 33,653.75 + 37% 311,025$ 19,750 - . . . . . 10% $ 0 $ 9,875 . . .. .. 10% 50 19,750 80,250 $ 1,975 00 + 12% 19,750 9,875 40,125 $ 987.50 + 12% 9,875 BD.250 171,050 9,235 00 + 22% 80,250 40,125 85,525 4,617.50 + 22% 40,125 171,050 326,600 29,211 00 + 24% 171,050 85,525 163,300 14,605.50 + 24% 85,525 326,600 414,700 66,513.00 + 32% 326,600 163,300 207,350 33,271.50 + 32% 163,300 414,700 622,050 94,735.00 + 35% 414,700 207,350 311,025 47,367.50 + 35% 207,350 622,050 - . . . . . 167,307.50 + 37% 622,050 311,025 - . . . . . 83,653.75 + 37% 311,025 Tax Planning Dan plans to reduce his work schedule and work only half-time for WO]] in 2021. 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 2021. 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 2021. Assume that all other income and expense items will be approximately the same as they were in 2020 (including the prize winnings). Assume that Willie will be enrolled in college as a full-time student for the summer and fall semesters. No changes regarding Gina and Ben. The $3,100 commission received on January 10, 2021, is induded in the $90,000 income to be earned by Freida in 2021. The 22% 2020 marginal tax rate remains the same in 2021. Assume a payroll tax rate for FICA and Medicare of 7-65%% and the Kentucky state income rate of 4%. Assume Interest income, dividend income, prize income and the standard deduction will be the same for 2021. Complete the following letter regarding whether the Butlers will have more or less disposable income (after Federal income tax) in 2021. SWFT, LLP 5191 Natorp Boulevard Mason, OH 45040 October 29, 2020 Dan and Freida Butler 625 Oak Street Corbin, KY 40701 Dear Dan and Freida You asked me to estimate your after-tax income under the assumption that Dan will work only halftime next year. The 37,000 v reduction in Dan's pay will be partially offset by a #| 4,000 v estimated increase in the amount Freida will earn. This net $ 33,000