I attached my assignment. can someone please help me

Joyce writes childrens books for a variety of publishers. She has been selfemployed since 2007. As a freelance writer, Joyce incurs costs associated with preparing a manuscript for which she does not yet have a contract. During the year, Joyce makes 4 business trips, each 3 days long, to meet with various publishers. For shorter trips that are closer to home, she either drives or takes the train and returns the same day. On December 10, 2015, Joyce receives an advance (see below) on her next book. Under the contract, Joyce is scheduled to begin work on the book on February 1, 2016, and must have it completed by November 30, 2016. The Schnappaufs home has 2 telephones. Joyce has a separate phone number for her business. The information on Joyces business is listed below. Royalties (Exhibits A10 to A12) Publishers advance $4,000 Office supplies 170 Train tickets 535 Airfare (4 trips) 1,670 Lodging (12 nights) 2,240 Meals (12 days) 610 Telephone ($28 monthly fee per phone line) 672 Internet provider 570 Cell phone, including business calls 913 Businessrelated postage 87 Printing/copying 162 Legal fees 2,000 Interest on auto 254 2. On January 2, 2015, Joyce purchases a new car to use in her business. The car, a Volster, costs $15,200. Joyce pays $2,200 in cash and finances the balance through the dealer. She uses the car 45 percent of the time for business and drives a total of 10,800 miles during 2015. The total expenses for the 10,800 miles driven are: repairs and maintenance, $240; insurance, $920; and gasoline, $1,960. The correct depreciation expense for 2015 is $684 ($15,200 45% 10%). 3. Joyce's office is located in a separate room in the house and occupies 375 square feet. The total square footage of the house is 2,500. The Schnappaufs purchased the home on July 7, 2001, for $70,000. The local practice is to allocate 10 percent of the purchase price to land. The depreciation percentage for the office is 0.02564. When Joyce started her business on January 1, 2007, the fair market value of the house was $108,000. The total household expenses for 2015 are as follows: Heat $2,170 Insurance 1,480 Electricity 740 Repairs to kitchen 3,100 Cleaning 1,560 Bill began work on his MBA at Denville University. He enrolled in two courses, and paid $3,000 in tuition and $310 for books. Bill and Joyce each contribute the maximum to their respective IRA accounts in 2015. The IRA account is Joyce's only retirement vehicle. Bill's basis in his IRA before the current year's contribution is $26,000, and Joyce's basis is $36,000. The fair market value of Bill's IRA on 12/31/15 is $41,720, and the fair market value of Joyce's IRA is $57,100. In addition, Bill and Joyce contributed $2,000 to a Coverdell Education Savings Account for Thomas. The Schnappaufs incur the following medical expenses (before considering the $700 reimbursement they receive from their health insurance policy): Medical premiums $3,800 Doctors 1,200 Chiropractor 650 Dentist 1,900 Vet fees (family dog Sandy) 350 Prescription drugs 340 Over-the-counter drugs (aspirin, cough syrup) 175 In addition, Bill purchases an Exsoaligner machine for $700. The machine was recommended by the chiropractor to help strengthen Bill's back muscles. The Schnappaufs pay the following property taxes: Wakefield house $11,200 Family car used by Bill (ad valorem) 480 Joyce's car (ad valorem) 520 10. The Schnappaufs receive two Form 1098s for the cost of interest on bank loans. They also pay interest on their personal credit cards. Jefferson Trust 1098 (Exhibit A-13Wakefield house) Jefferson Trust 1098 (Exhibit A-14Home equity) Dempsey's Department Store revolving account $191 Brooks' Bargain Basement revolving account 67 Jefferson Trust bank card 212 The proceeds from the home equity loan were used to renovate their kitchen and pay for Tom's tuition to private school. The interest on the portion of the loan used for private school tuition is $640. Bill and Joyce make cash charitable contributions to the United Fund Campaign ($2,700), Adelade University ($510), Tremon University ($1,900), and Christ the King Church in Kingston, R.I. ($3,100). The Schnappaufs have documentation to verify their cash contributions. They also donate property to the Salvation Army on July 15, 2015: Property FMV Original Cost Date Acquired Antique table $410 $225 1/4/04 Dishwasher 130 700 5/6/08 Sofa bed 90 800 13/14/10 Men's suits (2) 140 540 Various The Salvation Army acknowledges that these amounts represent the fair market value of the donated items. The Schnappaufs incur the following expenses: Type Amount 2014 tax preparation fee (paid in 2015) $800 Safety deposit box 60 Investment journals 380 Investment advice 1,050 Business publications (Bill) 675 Gambling losses 3,450 Because Joyce is self-employed, they make federal estimated tax payments of $210 per quarter on April 15, 2015, June 15, 2015, September 15, 2015, and January 15, 2016. They also make estimated payments of $150 per quarter to the state of Rhode Island on April 15, 2015, June 15, 2015, September 15, 2015, and December 31, 2015. Bill and Joyce paid $7,400 in tuition, $840 for books, and $9,300 for room and board for Will, a junior, to attend Springbrook State University. They also paid $16,410 in tuition, $950 in books, and $10,100 in room and board for Dan, a freshman at Prescott College. Other information: a. Joyce's business is named Queensbridge Books, and her employer I.D. number is 05-3456345. b. The Salvation Army's address is 15 High Street, Wakefield, R.I. 02879. c. To complete phase II, you will need the following additional forms: Schedule A, Schedule C, Schedule SE, and Forms 4562, 4684, 8283, 8606, 8829, and 8863. 8283 Noncash Charitable Contributions Form Attach to your tax return if you claimed a total deduction (Rev. December 2012) of over $500 for all contributed property. Department of the Treasury Information about Form 8283 and its separate instructions is at www.irs.gov/form8283. Internal Revenue Service Name(s) shown on your income tax return Bill Schnappaufs OMB No. 1545-0908 Attachment Sequence No. 155 Identifying number Note. Figure the amount of your contribution deduction before completing this form. See your tax return instructions. 150-52-0546 Section A. Donated Property of $5,000 or Less and Certain Publicly Traded SecuritiesList in this section only items (or groups of similar items) for which you claimed a deduction of $5,000 or less. Also, list certain publicly traded securities even if the deduction is more than $5,000 (see instructions). Part I Information on Donated PropertyIf you need more space, attach a statement. (b) If donated property is a vehicle (see instructions), check the box. Also enter the vehicle identification number (unless Form 1098-C is attached) (a) Name and address of the donee organization 1 (c) Description of donated property (For a donated vehicle, enter the year, make, model, condition, and mileage, unless Form 1098-C is attached.) Salvation A Army B C D E Note. If the amount you claimed as a deduction for an item is $500 or less, you do not have to complete columns (e), (f), and (g). (d) Date of the contribution (e) Date acquired by donor (mo., yr.) 07/15/12 07/15/12 01/04/01 A B C D E Part II (f) How acquired by donor (g) Donor's cost or adjusted basis (h) Fair market value (see instructions) 225 00 (i) Method used to determine the fair market value 515 00 450 00 Partial Interests and Restricted Use PropertyComplete lines 2a through 2e if you gave less than an entire interest in a property listed in Part I. Complete lines 3a through 3c if conditions were placed on a contribution listed in Part I; also attach the required statement (see instructions). 2a Enter the letter from Part I that identifies the property for which you gave less than an entire interest If Part II applies to more than one property, attach a separate statement. b Total amount claimed as a deduction for the property listed in Part I: (1) For this tax year (2) For any prior tax years c Name and address of each organization to which any such contribution was made in a prior year (complete only if different from the donee organization above): Name of charitable organization (donee) Address (number, street, and room or suite no.) City or town, state, and ZIP code d For tangible property, enter the place where the property is located or kept e Name of any person, other than the donee organization, having actual possession of the property 3a Is there a restriction, either temporary or permanent, on the donee's right to use or dispose of the donated property? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No b Did you give to anyone (other than the donee organization or another organization participating with the donee organization in cooperative fundraising) the right to the income from the donated property or to the possession of the property, including the right to vote donated securities, to acquire the property by purchase or otherwise, or to designate the person having such income, possession, or right to acquire? . . . . . . . . . . . . . c Is there a restriction limiting the donated property for a particular use? . . . . . . . . . . . . . . For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 62299J Form 8283 (Rev. 12-2012) Page 2 Form 8283 (Rev. 12-2012) Identifying number Name(s) shown on your income tax return Section B. Donated Property Over $5,000 (Except Certain Publicly Traded Securities)List in this section only items (or groups of similar items) for which you claimed a deduction of more than $5,000 per item or group (except contributions of certain publicly traded securities reported in Section A). An appraisal is generally required for property listed in Section B (see instructions). Part I 4 Information on Donated PropertyTo be completed by the taxpayer and/or the appraiser. Check the box that describes the type of property donated: a d g j Art* (contribution of $20,000 or more) Art* (contribution of less than $20,000) Collectibles** b e h c f i Qualified Conservation Contribution Other Real Estate Intellectual Property Equipment Securities Vehicles Other *Art includes paintings, sculptures, watercolors, prints, drawings, ceramics, antiques, decorative arts, textiles, carpets, silver, rare manuscripts, historical memorabilia, and other similar objects. **Collectibles include coins, stamps, books, gems, jewelry, sports memorabilia, dolls, etc., but not art as defined above. Note. In certain cases, you must attach a qualified appraisal of the property. See instructions. (a) Description of donated property (if you need more space, attach a separate statement) 5 (b) If tangible property was donated, give a brief summary of the overall physical condition of the property at the time of the gift (c) Appraised fair market value A B C D (d) Date acquired by donor (mo., yr.) (e) How acquired by donor (f) Donor's cost or adjusted basis See instructions (g) For bargain sales, enter amount received (h) Amount claimed as a deduction (i) Average trading price of securities A B C D Part II Taxpayer (Donor) StatementList each item included in Part I above that the appraisal identifies as having a value of $500 or less. See instructions. I declare that the following item(s) included in Part I above has to the best of my knowledge and belief an appraised value of not more than $500 (per item). Enter identifying letter from Part I and describe the specific item. See instructions. Signature of taxpayer (donor) Part III Date Declaration of Appraiser I declare that I am not the donor, the donee, a party to the transaction in which the donor acquired the property, employed by, or related to any of the foregoing persons, or married to any person who is related to any of the foregoing persons. And, if regularly used by the donor, donee, or party to the transaction, I performed the majority of my appraisals during my tax year for other persons. Also, I declare that I perform appraisals on a regular basis; and that because of my qualifications as described in the appraisal, I am qualified to make appraisals of the type of property being valued. I certify that the appraisal fees were not based on a percentage of the appraised property value. Furthermore, I understand that a false or fraudulent overstatement of the property value as described in the qualified appraisal or this Form 8283 may subject me to the penalty under section 6701(a) (aiding and abetting the understatement of tax liability). In addition, I understand that I may be subject to a penalty under section 6695A if I know, or reasonably should know, that my appraisal is to be used in connection with a return or claim for refund and a substantial or gross valuation misstatement results from my appraisal. I affirm that I have not been barred from presenting evidence or testimony by the Office of Professional Responsibility. Sign Here Signature Business address (including room or suite no.) Title Date Identifying number City or town, state, and ZIP code Part IV Donee AcknowledgmentTo be completed by the charitable organization. This charitable organization acknowledges that it is a qualified organization under section 170(c) and that it received the donated property as described in Section B, Part I, above on the following date Furthermore, this organization affirms that in the event it sells, exchanges, or otherwise disposes of the property described in Section B, Part I (or any portion thereof) within 3 years after the date of receipt, it will file Form 8282, Donee Information Return, with the IRS and give the donor a copy of that form. This acknowledgment does not represent agreement with the claimed fair market value. Does the organization intend to use the property for an unrelated use? . . . . . . . . . . . Name of charitable organization (donee) Employer identification number Address (number, street, and room or suite no.) City or town, state, and ZIP code Authorized signature Title . . . . Yes No Date Form 8283 (Rev. 12-2012) INTRODUCTION The information below will allow you to prepare the 2012 federal tax return for Bill and Joyce Schnappauf. The information is provided in three phases, which correspond to the three major components of computing income tax gross income, deductions and losses, and property transactions. If your instructor assigns these problems, at the end of each major segment (i.e., Chapter 4, Chapter 8, and Chapter 12), you should complete the appropriate portions of the forms indicated. If you are not using a tax software package, you should not complete the second page of Form 1040 until you have completed Chapter 12. Completing the tax return problem will help you understand the reporting procedures for the information in each major segment of the text. In addition, it will aid you in reviewing the major topics discussed in the book; it serves as an overview of the course. THE SCHNAPPAUF FAMILY In 2012, Bill and Joyce Schnappauf live in Wakefield, R.I. Bill is 53, and Joyce is 51. Bill is a district sales manager for USC Equipment Corporation, a Rhode Island firm that manufactures and distributes gaming equipment. Joyce is a self-employed author of children's books. The Schnappaufs have three children, Will, 21, Dan, 19, and Tom, 16. In February 2013, the Schnappaufs provide the following basic information for preparing their 2012 federal income tax return: 1. The Schnappaufs use the cash method of accounting and file their return on a calendar-year basis. 2. Unless otherwise stated, assume that the Schnappaufs want to minimize the current year's tax liability. That is, they would like to defer income when possible and take the largest deductions possible, a practice they have followed in the past. 3. Joyce's Social Security number is 371-42-5207 4. Bill's Social Security number is 150-52-0546 5. Will's Social Security number is 372-46-2611 6. Dan's Social Security number is 377-42-3411 7. Tom's Social Security number is 375-49-6511 8. The Schnappaufs do not have any foreign bank accounts or foreign trusts. 9. Their address is 27 Northup Street, Wakefield, R.I. (02879). 10. The Schnappaufs do not wish to contribute to the presidential election campaign. PHASE ICHAPTERS 1-4 The first phase of the tax return problem is designed to introduce you to some of the tax forms and the supporting documentation (Forms W-2, 1099-INT, etc.) needed to complete a basic tax return. The first four chapters focus on the income aspects of individual taxation. Accordingly, this phase of the tax return focuses on the basic income concepts. 1. Bill's W-2 is provided (Exhibit A-1). The 2012 W-2 includes his salary ($94,000), bonus ($47,000), and income from group-term life insurance coverage in excess of $50,000 ($121.44), and is reduced by his 7 percent contribution ($6,580) to USC's qualified pension plan. The company matches Bill's contribution to the plan. 2. The Schnappaufs receive two 1099-INTs for interest (Exhibits A-2 and A-3), two 1099-DIVs for dividends (Exhibits A-4 and A-5), and a combined interest and dividend statement (Exhibit A-6). 3. Joyce and her brother, Bob, are co-owners of, and active participants in, a furniture restoration business. Joyce owns 30 percent, and Bob owns 70 percent of the business. The business was formed as an S corporation in 2004. During 2012, the company pays$5,000 in dividends. The basis of Joyce's stock is $27,000. 4. The Schnappaufs receive a 2011 federal income tax refund of $1,342 on May 12, 2012. On May 15, 2012, they receive their income tax refund from the state of Rhode Island. In January 2013, the state mails the Schnappaufs a Form 1099-G (Exhibit A-7). Their total itemized deductions in 2011 were $22,854. 5. During 2012, Joyce is the lucky ninety-third caller to a local radio station and wins $500 in cash and a stereo system. Despite repeated calls to the radio station, she has not received a Form 1099MISC. In announcing the prize, the radio station host said that the manufacturer's suggested retail price for the stereo system is $625. However, Joyce has a catalog from Supersonic Electronics that advertises the system for $520. 6. The Schnappaufs receive a Form W-2G (Exhibit A-8) for their winnings at the Yardley Casino in Connecticut. 7. On June 26, 2012, Bill receives a check for $17,400 from the United Insurance Corporation. Though he was unaware of it, he was the designated beneficiary of an insurance policy on the life of his uncle. The policy had a maturity value of $16,980, and the letter from the company stated that his uncle had paid premiums on the policy of $2,950 (Exhibit A-9). 8. Joyce is active in the school PTO. During the year, she receives an award for outstanding service to the organization. She receives a plaque and two $75 gift certificates that were donated to the PTO by local merchants. 9. To complete phase I, you will need Form 1040, Schedule B, and Schedule D. INSTRUCTIONS: If you are using tax software to prepare the tax return or are not completing phases II and III of the problem, ignore the instructions that follow. If you are preparing the return manually, you cannot complete some of the forms used in phase I until you receive additional information provided in phase II or phase III. Therefore, as a general rule, you should only post the information to the appropriate form and not compute totals for that form. The following specific instructions will assist you in preparing Part I of the return. a. The only form that can be totaled is Schedule B. b. Only post the appropriate information to Schedule D. Do not total any columns. More information is provided in phase III of the tax return problem. c. Do not calculate total income or adjusted gross income on page 1 of Form 1040. d. Post the appropriate information on page 2 of Form 1040, but do not total this page, compute the federal tax liability, or determine the refund or balance due. PREPARATION AID: Tax forms and instructions can be downloaded from the IRS's home page (http://www.irs.treas.gov). You can also download IRS Publication 17, which is a useful guide in preparing the tax return. PHASEIICHAPTERS 5-8 This is the second phase of the tax return problem you began at the end of Chapter 4. This phase of the tax return incorporates the material from Chapters 5, 6, 7, and 8 by providing you with information concerning the Schnappaufs' deductions for 2012. They provide you with the following information. 1. Joyce writes children's books for a variety of publishers. She has been selfemployed since 2004. As a freelance writer, Joyce incurs costs associated with preparing a manuscript for which she does not yet have a contract. During the year, Joyce makes 4 business trips, each 3 days long, to meet with various publishers. For shorter trips that are closer to home, she either drives or takes the train and returns the same day. On December 10, 2012, Joyce receives an advance (see below) on her next book. Under the contract, Joyce is scheduled to begin work on the book on February 1, 2013, and must have it completed by November 30, 2013. The Schnappaufs' home has 2 telephones. Joyce has a separate phone number for her business. The information on Joyce's business is listed below. Royalties (Exhibits A-10 to A-12) Publisher's advance $4,500 Office supplies 180 Train tickets 640 Airfare (4 trips) 1,800 Lodging (12 nights) 2,120 Meals (12 days) 510 Telephone ($28 monthly fee per phone line) 672 Internet provider 416 Cell phone, including business calls 876 Business-related postage 108 Printing/copying 217 Legal fees 1,100 Interest on auto 374 2. On January 2, 2012, Joyce purchases a new car to use in her business. The car, a Volster, costs $15,200. Joyce pays $2,200 in cash and finances the balance through the dealer. She uses the car 40 percent of the time for business and drives a total of 10,500 miles during 2012. The total expenses for the 10,500 miles driven are: repairs and maintenance, $320; insurance, $735; and gasoline, $1,845. The correct depreciation expense for 2012 is $608 ($15,200 40% 10%). 3. Joyce's office is located in a separate room in the house and occupies 375 square feet. The total square footage of the house is 2,500. The Schnappaufs purchased the home on July 7, 1998, for $70,000. The local practice is to allocate 10 percent of the purchase price to land.The depreciation percentage for the office is 0.02564. When Joyce started her business on January 1, 2004, the fair market value of the house was $108,000.The total house hold expenses for 2012 are as follows: Heat $2,170 Insurance 1,425 Electricity 690 Repairs to kitchen 2,750 Cleaning 1,510 4. Bill began work on his MBA at Denville University. He enrolled in two courses, and paid $2,650 in tuition and $180 for books. 5. Bill and Joyce each contribute the maximum to their respective IRA accounts in 2012. The IRA account is Joyce's only retirement vehicle. Bill's basis in his IRA before the current year's contribution is $26,000, and Joyce's basis is $36,000. The fair market value of Bill's IRA on 12/31/12 is $41,720, and the fair market value of Joyce's IRA is $57,100. In addition, Bill and Joyce contributed $2,000 to a Coverdell Education Savings Account for Thomas. 6. On June 15, 2012, the Schnappaufs' 2011 station wagon is totaled in Hurricane Ann. The car was purchased for $28,700 in November 2010. The Schnappaufs receive a check for $21,200 from Zippy Insurance Company that represents the fair market value of the car minus a $750 deductible. On June 26, 2012, they replace the car with a 2012 station wagon. The new car costs $31,400, and the Schnappaufs receive a rebate check from the car's manufacturer for $2,500. 7. The hurricane also damages part of the Schnappaufs' house. A tree falls and makes a hole in the roof above the kitchen. Water damages the kitchen, causing the new dishwasher to short out, and it has to be replaced. In addition, the linoleum floor has to be replaced. The cost of fixing the hole in the roof is $1,000. The Schnappaufs receive $700 ($1,000 repair cost minus $300 deductible) to fix the roof. Information concerning the dishwasher and the floor is as follows: Property Date Acquired Original Cost FMV Before FMV After Reimbursement Dishwasher 3/30/12 $ 780 $ 780 $-0- $380 Floor 3/16/12 $1,500 $1,350 $-0- $850 8. The Schnappaufs incur the following medical expenses (before considering the $700 reimbursement they receive from their health insurance policy): Medical premiums $3,800 Doctors 1,200 Chiropractor 650 Dentist 1,900 Vet fees (family dog Sandy) 350 Prescription drugs 340 Over-the-counter drugs (aspirin, cough syrup) 175 In addition, Bill purchases an Exsoaligner machine for $700. The machine was recommended by the chiropractor to help strengthen Bill's back muscles. 9. The Schnappaufs pay the following property taxes: Wakefield house $7,700 Family car used by Bill (ad valorem) 480 Joyce's car (ad valorem) 510 10. The Schnappaufs receive two Form 1098s for the cost of interest on bank loans. They also pay interest on their personal credit cards. Jefferson Trust 1098 (Exhibit A-13Wakefield house) Jefferson Trust 1098 (Exhibit A-14Home equity) Dempsey's Department Store revolving account $191 Brooks' Bargain Basement revolving account 67 Jefferson Trust bank card 212 The proceeds from the home equity loan were used to renovate their kitchen and pay for Tom's tuition to private school. The interest on the portion of the loan used for private school tuition is $640. 11. Bill and Joyce make cash charitable contributions to the United Fund Campaign ($1,750), Adelade University ($300), Tremon University ($2,000), and Christ the King Church in Kingston, R.I. ($2,600). The Schnappaufs have documentation to verify their cash contributions. They also donate property to the Salvation Army on July 15, 2012: Property FMV Original Cost Date Acquired Antique table $515 $225 1/4/01 Dishwasher 150 700 5/6/05 Sofa bed 160 800 13/14/07 Men's suits (2) 140 540 Various The Salvation Army acknowledges that these amounts represent the fair market value of the donated items. 12. The Schnappaufs incur the following expenses: Type Amount 2011 tax preparation fee (paid in 2012) $ 900 Safety deposit box 35 Investment journals 405 Investment advice 875 Business publications (Bill) 550 Gambling losses 2,640 13. Because Joyce is self-employed, they make federal estimated tax payments of $225 per quarter on April 15, 2012, June 15, 2012, September 15, 2012, and January 15, 2013. They also make estimated payments of $140 per quarter to the state of Rhode Island on April 15, 2012, June 15, 2012, September 15, 2012, and December 31, 2012. 14. Bill and Joyce paid $6,150 in tuition, $625 for books, and $7,630 for room and board for Will, a junior, to attend Springbrook State University. They also paid $15,000 in tuition, $515 in books, and $8,130 in room and board for Dan, a freshman at Prescott College. 15. Other information: a. Joyce's business is named Queensbridge Books, and her employer I.D. number is 05-3456345. b. The Salvation Army's address is 15 High Street, Wakefield, R.I. 02879. c. To complete phase II, you will need the following additional forms: Schedule A, Schedule C, Schedule SE, and Forms 4562, 4684, 8283, 8606, 8829, and 8863. INSTRUCTIONS: If you are using tax software to prepare the tax return or are not completing phase III of the problem, ignore the instructions that follow. a. The only form that can be completed at the end of phase II is Form 8283. b. Do not calculate total income or adjusted gross income on page 1 of Form1040. c. Post the appropriate information on page 2 of Form 1040, but do not total this page, compute the federal tax liability, or determine the refund or balance due. d. Do not calculate the total itemized deductions on Schedule A. e. Do not total Joyce's expenses on Schedule C. f. Do not compute Joyce's self-employment tax on Schedule SE. g. Do not complete the summary section of Form 4562. h. Complete Form 4684 only to the point at which adjusted gross income is requested. i. On Form 8829, complete Part I, and only post the appropriate indirect expenses. Do not calculate the allowable depreciation or the allowable home office deduction. FORM 1099 DIV FORM 1099-DIV THE SCHNAPPAUF FAMILY In 2015, Bill and Joyce Schnappauf live in Wakefield, R.I. Bill is 53, and Joyce is 51. Bill is a district sales manager for USC Equipment Corporation, a Rhode Island firm that manufactures and distributes gaming equipment. Joyce is a selfemployed author of children's books. The Schnappaufs have three children, Will, 21, Dan, 19, and Tom, 16. In February 2016, the Schnappaufs provide the following basic information for preparing their 2015 federal income tax return: 1. The Schnappaufs use the cash method of accounting and file their return on a calendaryear basis. 2. Unless otherwise stated, assume that the Schnappaufs want to minimize the current year's tax liability. That is, they would like to defer income when possible and take the largest deductions possible, a practice they have followed in the past. 3. Joyce's Social Security number is 371425207. 4. Bill's Social Security number is 150520546. 5. Will's Social Security number is 372462611. 6. Dan's Social Security number is 377423411. 7. Tom's Social Security number is 375496511. 8. The Schnappaufs do not have any foreign bank accounts or foreign trusts. 9. Their address is 27 Northup Street, Wakefield, R.I. (02879). 10. The Schnappaufs do not wish to contribute to the presidential election campaign. PHASE ICHAPTERS 1-4 The first phase of the tax return problem is designed to introduce you to some of the tax forms and the supporting documentation (Forms W2, 1099INT, etc.) needed to complete a basic tax return. The first four chapters focus on the income aspects of individual taxation. Accordingly, this phase of the tax return focuses on the basic income concepts. 1. Bill's W2 is provided (Exhibit A1). The 2015 W2 includes his salary ($98,000), bonus ($61,000), and income from groupterm life insurance coverage in excess of $50,000 ($132.48), and is reduced by his 7 percent contribution ($6,860) to USC's qualified pension plan. The company matches Bill's contribution to the plan. 2. The Schnappaufs receive two 1099INTs for interest (Exhibits A2 and A 3), two 1099DIVs for dividends (Exhibits A4 and A5), and a combined interest and dividend statement (Exhibit A6). 3. Joyce and her brother, Bob, are coowners of, and active participants in, a furniturerestoration business. Joyce owns 30 percent, and Bob owns 70 percent of the business. The business was formed as an S corporation in 2007. During 2015, the company pays $5,000 in dividends. The basis of Joyce's stock is $33,000. 4. The Schnappaufs receive a 2014 federal income tax refund of $987 on May 12, 2015. On May 15, 2015, they receive their income tax refund from the state of Rhode Island. In January 2016, the state mails the Schnappaufs a Form 1099G (Exhibit A7). Their total itemized deductions in 2014 were $20,161. 5. During 2015, Joyce is the lucky ninetythird caller to a local radio station and wins $300 in cash and a Tablet. Despite repeated calls to the radio station, she has not received a Form 1099MISC. In announcing the prize, the radio station host said that the manufacturer's suggested retail price for the Tablet is $720. However, Joyce has a catalog from Supersonic Electronics that advertises the Tablet for $595. 6. The Schnappaufs receive a Form W2G (Exhibit A8) for their winnings at the Yardley Casino in Connecticut. 7. On June 26, 2015, Bill receives a check for $15,480 from the United Insurance Corporation. Though he was unaware of it, he was the designated beneficiary of an insurance policy on the life of his uncle. The policy had a maturity value of $15,100, and the letter from the company stated that his uncle had paid premiums on the policy of $3,620 (Exhibit A 9). 8. Joyce is active in the school PTO. During the year, she receives an award for outstanding service to the organization. She receives a plaque and two $125 gift certificates that were donated to the PTO by local merchants. 9. To complete phase I, you will need Form 1040, Schedule B, and Schedule D. INSTRUCTIONS: If you are using tax software to prepare the tax return or are not completing phases II and III of the problem, ignore the instructions that follow. If you are preparing the return manually, you cannot complete some of the forms used in phase I until you receive additional information provided in phase II or phase III. Therefore, as a general rule, you should only post the information to the appropriate form and not compute totals for that form. The following specific instructions will assist you in preparing Part I of the return. a. The only form that can be totaled is Schedule B. b. Only post the appropriate information to Schedule D. Do not total any columns. More information is provided in phase III of the tax return problem. c. Do not calculate total income or adjusted gross income on page 1 of Form 1040. d. Post the appropriate information on page 2 of Form 1040, but do not total this page, compute the federal tax liability, or determine the refund or balance due. PHASE IICHAPTERS 5-8 This is the second phase of the tax return problem you began at the end of Chapter 4. This phase of the tax return incorporates the material from Chapters 5, 6, 7, and 8 by providing you with information concerning the Schnappaufs' deductions for 2015. They provide you with the following information. 1e Joyce writes childrens books for a variety of publishers. She has been selfemployed since 2007. As a freelance writer, Joyce incurs costs associated with preparing a manuscript for which she does not yet have a contract. During the year, Joyce makes 4 business trips, each 3 days long, to meet with various publishers. For shorter trips that are closer to home, she either drives or takes the train and returns the same day. On December 10, 2015, Joyce receives an advance (see below) on her next book. Under the contract, Joyce is scheduled to begin work on the book on February 1, 2016, and must have it completed by November 30, 2016. The Schnappaufs home has 2 telephones. Joyce has a separate phone number for her business. The information on Joyces business is listed below. Royalties (Exhibits A10 to A12) Publishers advance $4,000 Office supplies 170 Train tickets 535 Airfare (4 trips) 1,670 Lodging (12 nights) 2,240 Meals (12 days) 610 Telephone ($28 monthly fee per phone line) 672 Internet provider 570 Cell phone, including business calls 913 Businessrelated postage 87 Printing/copying 162 Legal fees 2,000 Interest on auto 254 2. On January 2, 2015, Joyce purchases a new car to use in her business. The car, a Volster, costs $15,200. Joyce pays $2,200 in cash and finances the balance through the dealer. She uses the car 45 percent of the time for business and drives a total of 10,800 miles during 2015. The total expenses for the 10,800 miles driven are: repairs and maintenance, $240; insurance, $920; and gasoline, $1,960. The correct depreciation expense for 2015 is $684 ($15,200 45% 10%). 3. Joyce's office is located in a separate room in the house and occupies 375 square feet. The total square footage of the house is 2,500. The Schnappaufs purchased the home on July 7, 2001, for $70,000. The local practice is to allocate 10 percent of the purchase price to land. The depreciation percentage for the office is 0.02564. When Joyce started her business on January 1, 2007, the fair market value of the house was $108,000. The total household expenses for 2015 are as follows: Heat $2,170 Insurance 1,480 Electricity 740 Repairs to kitchen 3,100 Cleaning 1,560 Bill began work on his MBA at Denville University. He enrolled in two courses, and paid $3,000 in tuition and $310 for books. 5. Bill and Joyce each contribute the maximum to their respective IRA accounts in 2015. The IRA account is Joyce's only retirement vehicle. Bill's basis in his IRA before the current year's contribution is $26,000, and Joyce's basis is $36,000. The fair market value of Bill's IRA on 12/31/15 is $41,720, and the fair market value of Joyce's IRA is $57,100. In addition, Bill and Joyce contributed $2,000 to a Coverdell Education Savings Account for Thomas. 6.The Schnappaufs incur the following medical expenses (before considering the $700 reimbursement they receive from their health insurance policy): Medical premiums $3,800 Doctors 1,200 Chiropractor 650 Dentist 1,900 Vet fees (family dog Sandy) 350 Prescription drugs 340 Over-the-counter drugs (aspirin, cough syrup) 175 In addition, Bill purchases an Exsoaligner machine for $700. The machine was recommended by the chiropractor to help strengthen Bill's back muscles. 7.The Schnappaufs pay the following property taxes: Wakefield house $11,200 Family car used by Bill (ad valorem) 480 Joyce's car (ad valorem) 520 10. 8.The Schnappaufs receive two Form 1098s for the cost of interest on bank loans. They also pay interest on their personal credit cards. Jefferson Trust 1098 (Exhibit A-13Wakefield house) Jefferson Trust 1098 (Exhibit A-14Home equity) Dempsey's Department Store revolving account $191 Brooks' Bargain Basement revolving account 67 Jefferson Trust bank card 212 The proceeds from the home equity loan were used to renovate their kitchen and pay for Tom's tuition to private school. The interest on the portion of the loan used for private school tuition is $640. 9.Bill and Joyce make cash charitable contributions to the United Fund Campaign ($2,700), Adelade University ($510), Tremon University ($1,900), and Christ the King Church in Kingston, R.I. ($3,100). The Schnappaufs have documentation to verify their cash contributions. They also donate property to the Salvation Army on July 15, 2015: Property FMV Original Cost Date Acquired Antique table $410 $225 1/4/04 Dishwasher 130 700 5/6/08 Sofa bed 90 800 13/14/10 Men's suits (2) 140 540 Various The Salvation Army acknowledges that these amounts represent the fair market value of the donated items. 10.The Schnappaufs incur the following expenses: Type Amount 2014 tax preparation fee (paid in 2015) $800 Safety deposit box 60 Investment journals 380 Investment advice 1,050 Business publications (Bill) 675 Gambling losses 3,450 11.Because Joyce is self-employed, they make federal estimated tax payments of $210 per quarter on April 15, 2015, June 15, 2015, September 15, 2015, and January 15, 2016. They also make estimated payments of $150 per quarter to the state of Rhode Island on April 15, 2015, June 15, 2015, September 15, 2015, and December 31, 2015. 12. Bill and Joyce paid $7,400 in tuition, $840 for books, and $9,300 for room and board for Will, a junior, to attend Springbrook State University. They also paid $16,410 in tuition, $950 in books, and $10,100 in room and board for Dan, a freshman at Prescott College. 15.Other information: a. Joyce's business is named Queensbridge Books, and her employer I.D. number is 05-3456345. b. The Salvation Army's address is 15 High Street, Wakefield, R.I. 02879. c. To complete phase II, you will need the following additional forms: Schedule A, Schedule C, Schedule SE, and Forms 4562, 4684, 8283, 8606, 8829, and 8863. PHASE IIICHAPTERS 9-12 This is the third and final phase of the Schnappauf family's tax return. This phase incorporates the material in Chapters 9, 10, 11, and 12 requires you to analyze the various types of property transactions discussed in those chapters. 1. On February 11, 2015, Bill inherits his father's summer home. The house, located in South Lake Tahoe, Nevada, has a fair market value of $550,000 at the date of his father's death. His parents had purchased the house in 1977 for $140,000 and made $122,000 worth of capital improvements to it. Twenty percent of the total value of the property is attributable to the land. Because Bill and Joyce ultimately would like to use the property as a vacation home, they decide to rent it out. Bill actively participates in the management of the property. The property is first advertised for rent on March 1, 2015, but is not rented until April 15, 2015. Bill provides the following income and expense information for the Lake Tahoe rental property: Rent $21,000 Repairs 6,250 Management fee 4,800 Property taxes 15,100 Insurance 3,500 In addition, Bill buys a new stove for $1,800 and a new refrigerator for $1,450 on March 20, 2015. A-6 Appendix A Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole Rent $45000 Repairs 6,250 Management fee 4,800 Property taxes 15,100 Insurance 3,500 In addition, Bill buys a new stove for $1,800 and a new refrigerator for $1,450 on March 20, 2015. 2. The Schnappaufs receive Form 1099-B (Exhibit A-15) from Pebble Beach Investors for the sale of several securities. Details on the securities sales are provided below. The selling price listed is net of brokerage commissions and represents the amount the Schnappaufs actually receive from the sale. Stock Date Acquired Date Sold Sale Price Purchase Price 150 shares Pfizer Corporation 5/12/92 8/15/15 $6,000 $* 300 shares Texas Instruments 7/30/97 10/25/15 17,100 ** 50 shares Alcoa 6/10/09 10/23/15 525 1,800 25 shares Luminent 4/28/15 9/4/15 900 2,700 60 shares Textron 9/11/15 10/27/15 10,410 9,100 300 shares Hasbro 1/7/04 12/20/15 6,125 3,150 *When Joyce graduated from college on May 12, 1992, her father gave her 150 shares of Pfizer Corporation stock that he had acquired on October 27, 1984, for $1,300. At the date of the gift, the fair market value of the stock was $1,800. In January 2001, Pfizer Corporation stock split 2 for 1. **The Schnappaufs acquired 500 shares of preferred stock in Texas Instruments for $7,810. Shortly after the purchase, they received a nontaxable 10% stock dividend. 5. Joyce receives a Schedule K-1 (Exhibit A-16) for her interest in the furniturerestoration business. 6. Other information: a. The rental property in Lake Tahoe is located at 100 Paraiso Drive, South Lake Tahoe (88197). Submit a completed tax return (clipped together), through calculating the tax liability, calculating any tax credits, applying the taxes paid toward the tax liability and determining the tax due or refund for the Smith family. Please put forms and schedules in Attachment Sequence Number order. Sequence Number can be found on each form at the top on the right hand side of the form or schedule below the tax year - 2016. A completed tax return through Phase II & III will include all of the following forms and schedules: Form 1040 - make any corrections from Phase I and add information from Phase II & III Schedule A - may require other Forms, See Sch. A Schedule B - from Phase I Schedule C Schedule D - update from Phase I, if you used this schedule in Phase I Form 8949(s) - Sales and Dispositions of Capital Assets Schedule E Schedule SE Form 8606 - Nondeductible IRAs - Assume IRA Contributions were for Conventional IRAs. Form 8863 - Educations Credits - Complete form even if unable to take the credit. Form 8283 - Noncash Charitable Contributions Form 8829 - Expenses for Business Use of Your Home Form 4562 - Depreciation - if needed for Actual Car Expenses for Joyce's business Form 4562 - Depreciation for Rental Property Submit your supporting, typed documentation explaining how each item listed in the text is handled. Please provide the IRC Code Section, Regulation or Tax Case for your support only. Please make the following changes to the information provided: Change all dates by one year, 2015 becomes 2016, 2014 becomes 2015, etc. Phase I - Item #1 - Change Bill's wages to $129,272 Phase III You will need to depreciate the house, stove and refrigerator. Depreciation will be covered in Chapter 10. Phase II includes pages A-3 through A-6 and Exhibits A-10 through A-14. Phase III includes pages A-6 & A-7 and Exhibits A-15 & A-16 (Pages A-22 through A-24). Other Statements/Worksheets: Complete Forms and Schedules before completing Form 1040. Schedule A should be completed only after you know the Adjusted Gross Income (AGI), see Form 1040 Line 37. For any Schedule or Form - If you combine amounts listed in the problem please submit the Form, Line Number and Amounts used to derive the amount on the particular Line on the Form. Determine the Tax Liability (you will need to complete Page 44/105 found in the Form 1040 Instructions). Please use the 2016 tax rates which can be found in Appendix B, Page B-2 or the inside front cover of your text. Determine any Tax Credits that apply to the Smith Family Apply the Federal Income Taxes Paid and determine the Refund or Taxes Owed. 8283 Noncash Charitable Contributions Form Attach to your tax return if you claimed a total deduction (Rev. December 2012) of over $500 for all contributed property. Department of the Treasury Information about Form 8283 and its separate instructions is at www.irs.gov/form8283. Internal Revenue Service Name(s) shown on your income tax return Bill Schnappaufs OMB No. 1545-0908 Attachment Sequence No. 155 Identifying number Note. Figure the amount of your contribution deduction before completing this form. See your tax return instructions. 150-52-0546 Section A. Donated Property of $5,000 or Less and Certain Publicly Traded SecuritiesList in this section only items (or groups of similar items) for which you claimed a deduction of $5,000 or less. Also, list certain publicly traded securities even if the deduction is more than $5,000 (see instructions). Part I Information on Donated PropertyIf you need more space, attach a statement. (b) If donated property is a vehicle (see instructions), check the box. Also enter the vehicle identification number (unless Form 1098-C is attached) (a) Name and address of the donee organization 1 (c) Description of donated property (For a donated vehicle, enter the year, make, model, condition, and mileage, unless Form 1098-C is attached.) Salvation A Army B C D E Note. If the amount you claimed as a deduction for an item is $500 or less, you do not have to complete columns (e), (f), and (g). (d) Date of the contribution (e) Date acquired by donor (mo., yr.) 07/15/12 07/15/12 01/04/01 A B C D E Part II (f) How acquired by donor (g) Donor's cost or adjusted basis (h) Fair market value (see instructions) 225 00 (i) Method used to determine the fair market value 515 00 450 00 Partial Interests and Restricted Use PropertyComplete lines 2a through 2e if you gave less than an entire interest in a property listed in Part I. Complete lines 3a through 3c if conditions were placed on a contribution listed in Part I; also attach the required statement (see instructions). 2a Enter the letter from Part I that identifies the property for which you gave less than an entire interest If Part II applies to more than one property, attach a separate statement. b Total amount claimed as a deduction for the property listed in Part I: (1) For this tax year (2) For any prior tax years c Name and address of each organization to which any such contribution was made in a prior year (complete only if different from the donee organization above): Name of charitable organization (donee) Address (number, street, and room or suite no.) City or town, state, and ZIP code d For tangible property, enter the place where the property is located or kept e Name of any person, other than the donee organization, having actual possession of the property 3a Is there a restriction, either temporary or permanent, on the donee's right to use or dispose of the donated property? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No b Did you give to anyone (other than the donee organization or another organization participating with the donee organization in cooperative fundraising) the right to the income from the donated property or to the possession of the property, including the right to vote donated securities, to acquire the property by purchase or otherwise, or to designate the person having such income, possession, or right to acquire? . . . . . . . . . . . . . c Is there a restriction limiting the donated property for a particular use? . . . . . . . . . . . . . . For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 62299J Form 8283 (Rev. 12-2012) Page 2 Form 8283 (Rev. 12-2012) Identifying number Name(s) shown on your income tax return Section B. Donated Property Over $5,000 (Except Certain Publicly Traded Securities)List in this section only items (or groups of similar items) for which you claimed a deduction of more than $5,000 per item or group (except contributions of certain publicly traded securities reported in Section A). An appraisal is generally required for property listed in Section B (see instructions). Part I 4 Information on Donated PropertyTo be completed by the taxpayer and/or the appraiser. Check the box that describes the type of property donated: a d g j Art* (contribution of $20,000 or more) Art* (contribution of less than $20,000) Collectibles** b e h c f i Qualified Conservation Contribution Other Real Estate Intellectual Property Equipment Securities Vehicles Other *Art includes paintings, sculptures, watercolors, prints, drawings, ceramics, antiques, decorative arts, textiles, carpets, silver, rare manuscripts, historical memorabilia, and other similar objects. **Collectibles include coins, stamps, books, gems, jewelry, sports memorabilia, dolls, etc., but not art as defined above. Note. In certain cases, you must attach a qualified appraisal of the property. See instructions. (a) Description of donated property (if you need more space, attach a separate statement) 5 (b) If tangible property was donated, give a brief summary of the overall physical condition of the property at the time of the gift (c) Appraised fair market value A B C D (d) Date acquired by donor (mo., yr.) (e) How acquired by donor (f) Donor's cost or adjusted basis See instructions (g) For bargain sales, enter amount received (h) Amount claimed as a deduction (i) Average trading price of securities A B C D Part II Taxpayer (Donor) StatementList each item included in Part I above that the appraisal identifies as having a value of $500 or less. See instructions. I declare that the following item(s) included in Part I above has to the best of my knowledge and belief an appraised value of not more than $500 (per item). Enter identifying letter from Part I and describe the specific item. See instructions. Signature of taxpayer (donor) Part III Date Declaration of Appraiser I declare that I am not the donor, the donee, a party to the transaction in which the donor acquired the property, employed by, or related to any of the foregoing persons, or married to any person who is related to any of the foregoing persons. And, if regularly used by the donor, donee, or party to the transaction, I performed the majority of my appraisals during my tax year for other persons. Also, I declare that I perform appraisals on a regular basis; and that because of my qualifications as described in the appraisal, I am qualified to make appraisals of the type of property being valued. I certify that the appraisal fees were not based on a percentage of the appraised property value. Furthermore, I understand that a false or fraudulent overstatement of the property value as described in the qualified appraisal or this Form 8283 may subject me to the penalty under section 6701(a) (aiding and abetting the understatement of tax liability). In addition, I understand that I may be subject to a penalty under section 6695A if I know, or reasonably should know, that my appraisal is to be used in connection with a return or claim for refund and a substantial or gross valuation misstatement results from my appraisal. I affirm that I have not been barred from presenting evidence or testimony by the Office of Professional Responsibility. Sign Here Signature Business address (including room or suite no.) Title Date Identifying number City or town, state, and ZIP code Part IV Donee AcknowledgmentTo be completed by the charitable organization. This charitable organization acknowledges that it is a qualified organization under section 170(c) and that it received the donated property as described in Section B, Part I, above on the following date Furthermore, this organization affirms that in the event it sells, exchanges, or otherwise disposes of the property described in Section B, Part I (or any portion thereof) within 3 years after the date of receipt, it will file Form 8282, Donee Information Return, with the IRS and give the donor a copy of that form. This acknowledgment does not represent agreement with the claimed fair market value. Does the organization intend to use the property for an unrelated use? . . . . . . . . . . . Name of charitable organization (donee) Employer identification number Address (number, street, and room or suite no.) City or town, state, and ZIP code Authorized signature Title . . . . Yes No Date Form 8283 (Rev. 12-2012)