Question

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:
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 123-45-6788.
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.
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.
Lin
Description
Dan
Freida
e
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, closing date.
Other income (as reported on 1099 forms) for 2020 consisted of the following:
Fill out on 1040 form & schedule b form
Dividends on CSX stock (qualified)
Interest on savings at Second Bank
Interest on City of Corbin bonds
Interest on First Bank CD
$4.200
1,600
900
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 included the
following:
Paid on 2020 Kentucky income tax
S
700
Personal property tax paid
600
Real estate taxes paid
1,800
Interest on home mortgage (Corbin S&L)
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%.
Compute Dan and Freida's 2020 Federal income tax payable (or refund due), and complete their
2020 tax return using the appropriate forms and schedules. Suggested software: ProConnect Tax

Answer 1

Dan and Freida's 2020 Federal income tax payable is $25,535.

Step-by-step explanation:

Federal Income Tax Calculation:

Income:

Dan's wages: $74,000

Freida's wages: $86,000

Dividends on CSX stock: $4,200

Interest on savings: $1,600

Interest on City of Corbin bonds: $900

Interest on First Bank CD: $382

Federal estimated tax payments made: $8,000

Economic impact payments received: Correct amount

Itemized Deductions:

Paid on 2020 Kentucky income tax: $700

Personal property tax paid: $600

Real estate taxes paid: $1,800

Interest on home mortgage: $4,900

Sales tax from the sales tax table: $1,860

Tax Calculation:

Total income: $167,082

Adjusted gross income (AGI): $164,682 ($167,082 - $2,400)

Taxable income: $158,682 ($164,682 - $6,000)

Federal income tax: $25,535

Tax Due:

Federal income tax payable: $25,535

Refund due: $0

Answer 2

In computing Dan and Freida Butler's 2020 Federal Income Tax Return, The Butlers' federal income tax payable for 2020 is $33,572.

How is that so?

Dan and Freida Butler's 2020 Federal Income Tax Return is computed below:

Taxpayers:

Daniel B. Butler (SSN: 111-11-1112)

Freida C. Butler (SSN: 123-45-6780)

Address: 625 Oak Street, Corbin, KY 40701

Filing Status: Married Filing Jointly

Dependents:

• Gina Butler (daughter, age 22, full-time student, SSN: 123-45-6788)
• Willie Butler (son, age 19, graduated high school, SSN: 123-45-6787)

Income:

Description | Dan | Freida | Total

Wages, tips, other compensation | $74,000 | $86,000 | $160,000

Freida's commission (not included in W-2) | - | $3,100 | $3,100

Dividends on CSX stock (qualified) | - | - | $4,200

Interest on savings at Second Bank | - | - | $1,600

Interest on City of Corbin bonds | - | - | $900

Original issue discount on First Bank CD | - | - | $382

Game show winnings | - | - | $7,000

Total income $177,182

Adjustments:

Description | Amount

Original issue discount on First Bank CD | $382

Total adjustments | $382

Adjusted Gross Income (AGI) | $177,564 |

Itemized Deductions:

Description | Amount

Paid on 2020 Kentucky income tax | $700

Personal property tax paid | $600

Real estate taxes paid | $1,800

Interest on home mortgage (Corbin S&L) | $4,900

Sales tax from the sales tax table | $1,860

Total itemized deductions | $10,860

Taxable Income:

• AGI - Itemized Deductions = $166,704

Tax Computation:

• Use the Joint Tax Rate Schedule for 2020
• Taxable income falls in the 24% marginal tax bracket
• Tax liability = $39,576 + 24% of ($166,704 - $163,300) = $41,572

Credits:

• Federal estimated tax payments made: $8,000

Tax Payable (Refund Due):

• Tax liability - Credits = $33,572 (Tax payable)

Forms to be completed:

• Form 1040: Individual Income Tax Return
• Schedule B: Interest and Ordinary Dividends
• Schedule A: Itemized Deductions
• Form 2441: Child and Dependent Care Expenses (if applicable)
• Schedule SE: Self-Employment Tax (if applicable)