THE SCHNAPPAUF FAMILY In 2018, 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 chil- dren's books. The Schnappaufs have three children, Will, 21, Dan, 19, and Tom, 16. In February 2019, the Schnappaufs provide the following basic information for preparing their 2018 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 cur- rent 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. Joyce writes children's books for a variety of publishers. She has been self- employed since 2010. 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 four business trips, each 3 days long, to meet with various publish ers. For shorter trips that are closer to home, she either drives or takes the train and returns the same day. On December 10, 2018, 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, 2019, and must have it completed by November 30, 2019. The Schnappaufs' home has two telephones. Joyce has a separate phone num- ber for her business. The information on Joyce's business is listed below. $4,000 170 Royalties (Exhibits A-10 to A-12) Publisher's advance Office supplies Train tickets Airfare (4 trips) Lodging (12 nights) Meals (12 days) Telephone ($28 monthly fee per phone line) Internet provider Cell phone, including business calls Business-related postage Printing/copying Legal fees Interest on auto 535 1,670 2,240 610 672 570 913 87 162 2,000 254 7. The Schnappaufs pay the following property taxes: Wakefield house Family car used by Bill (ad valorem) Joyce's car (ad valorem) $11,200 480 520 67 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 Jefferson Trust bank card 212 The proceeds from the home equity loan were used to renovate their kitchen. 9. Bill and Joyce make cash charitable contributions to the United Fund Campaign ($5,700), Adelade University ($2,510), Tremon University ($1,900), and Christ the King Church in Kingston, R.I. ($8,100). The Schnappaufs have documenta- tion to verify their cash contributions. They also donate property to the Salvation Army on July 15, 2018: Property FMV Original Cost Date Acquired Antique table $410 $225 1/4/07 Dishwasher 130 700 5/6/11 Sofa bed 90 800 13/14/13 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 $3,450 in gambling losses. 11. Because Joyce is self-employed, they make federal estimated tax payments of $210 per quarter on April 15, 2018, June 15, 2018, September 15, 2018, and January 15, 2019. They also make estimated payments of $150 per quarter to the state of Rhode Island on April 15, 2018, June 15, 2018, September 15, 2018, and December 31, 2018. 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. 13. 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 complet- ing phase III of the problem, ignore the instructions that follow. As in phase I, there are forms in phase II that cannot be completed without ad- ditional information which is provided in 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 II of the return. 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 Form 1040. 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. On Form 8829, complete Part I, and only post the appropriate indirect ex- penses. Do not calculate the allowable depreciation or the allowable home office deduction