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 111-11-1111, 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, who married on December 21, 2016, has no income of her own and for 2016 did not file a joint return with her husband, Casey, who earned $10,600 during 2016. Gina’s Social Security number is 123-45-6788.
b. Sam, their son, age 20, who had gross income of $6,300 in 2016, dropped out of college in October 2016. He had graduated from high school in May 2016. Sam’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
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, 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.
Other income (as reported on 1099 Forms) for 2016 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 was original issue discount. Dan and Freida collected $16,000 on the First Bank CD that matured on September 30, 2016. The CD was purchased on October 1, 2014, for $14,995, and the yield to maturity was 3.3%.
Dan received a Schedule K–1 from the Falcon Partnership, which showed his distributive share of income as $7,000 (non passive income).
In addition to the above information, Dan and Freida’s itemized deductions included the following:
Paid on 2016 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 Boy Scouts
800
Sales tax from the sales tax table is $1,860. Dan and Freida made Federal estimated tax payments of $8,000. All members of the family had health insurance coverage for all of 2016. Dan and Freida do not wish to contribute to the Presidential Election Campaign. The Kentucky income tax rate is 4%.
Required:
Compute Dan and Freida’s 2016 Federal income tax payable (or refund due). Use Form 1040 and Schedules A, B, and E 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 2016 Tax Rate Schedule provided. Do not use the Tax Tables.
I. Determine proper filing status of the individual’s scenario as presented. [ACC-330-02]
II. Determine the correct number of exemptions to be included. Keep in mind that exemptions are listed on page 1 and page 2 of Form 1040. [ACC-330-02]
III. Prepare Schedule A and record total itemized deductions on page 2 of Form 1040. Schedule A may include the items below. [ACC-330-02] A. Medical and Dental Expenses B. Taxes You Paid C. Interest You Paid D. Gifts to Charity E. Casualty and Theft Losses F. Job Expenses and Certain Miscellaneous Deductions G. Other Miscellaneous Deductions H. Total Itemized Deductions
IV. Prepare Schedule B and complete lines 8a, 8b, 9a, and 9b as needed on page 1 of Form 1040. Schedule B may include the items below. [ACC-330-02] A. Interest B. Ordinary Dividends
V. Properly prepare Schedule E and complete line 17 on page 1 of Form 1040. Note: Page 1 of Schedule E does not require input. [ACC-330-02] A. Part II B. Part IV
VI. Calculate total income and adjusted gross income based on the information provided. [ACC-330-02]
VII. Calculate taxable income on page 2 of Form 1040. [ACC-330-02]
VIII. Utilize the provided tax rate schedules provided for you in Cengage and complete the Qualified Dividends and Capital Gains Tax Worksheet. Be sure to transfer your total tax to page 2 of Form 1040. [ACC-330-02]
IX. Complete applicable lines related to tax liability, including the total tax line. You will need to calculate the total tax (line 63), paying close attention to any lines on page 2 of Form 1040 relating to tax and/or lines that require a subtotal. [ACC-330-02]
X. Complete the payments section of page 2 of Form 1040. [ACC-330-02] XI. Complete the refund or amount you owe section of page 2 of Form 1040 based on whether the individuals are to receive a refund or owe additional tax
XI. Complete the Tax Planning questions presented in the assignment. (template)
