TAX PROBLEM-The schnappauf family 2013 tax return problems

INTRODUCTION

The information below will allow you to prepare the 2013 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 2013, 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 2014, the Schnappaufs provide the following basic information for preparing their 2013 federal income tax return:1. The Schnappaufs use the cash method of accounting and file their return on acalendar-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 thepast.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 I—CHAPTERS 1–4The 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 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 2013 W-2 includes his salary ($96,000),bonus ($53,000), and income from group-term life insurance coverage in excess of $50,000 ($126.96), and is reduced by his 7 percent contribution ($6,720) tusk’s qualified pension plan. The company matches Bill’s contribution to theplan.2. The Schnappaufs receive two 1099-INTs for interest (Exhibits A-2 and A-3), two1099-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 2005. During 2013, the company pays $4,800 in dividends. The basis of Joyce’s stock is $31,000.