ch. 6 solutions

West Federal Taxation 2008: Individual Income Taxes, Professional Version (West's Federal Taxation: Individual Income Taxes)

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Chapter 6 33. Since these expenses relate to Sandra’s law practice, all are deductible in calculating her AGI. Therefore, they reduce AGI by $4,225. Conference registration ($800 + $800) $1,600 Airline tickets ($900 + $400) 1,300 Lodging ($650 + $350) 1,000 Rental car in San Francisco 325 $4,225 pp. 6-2 and 6-3   With IRA Without IRA 35. Contribution Contribution Gross income $13,200 $13,200 Contribution to IRA (4,000) (–0–) AGI $ 9,200 $13,200 Itemized deductions: Charitable contribution $ 1,500 $ 1,500 Medical expenses [$3,200 – (7.5% × AGI)] 2,510 2,210 Casualty loss [($3,600 – $100) – (10% × AGI)] 2,580 2,180 Total itemized deductions $ 6,590 $ 5,890 Thus, the $4,000 IRA contribution would increase Julie’s itemized deductions by $700 ($6,590 – $5,890). Example 2 42. a. Gross income $ 550,000 Deductible expenses:
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Salaries $80,000 Rent 24,000 Utilities and telephone 9,000 Interest 6,000 Medical insurance premiums for employees 4,000 Depreciation 12,000 (135,000) Net income $ 415,000 Only the usual business expenses are deductible. The illegal kickbacks of $20,000 and the bribes to police of $25,000 violate public policy and, therefore, are not deductible. Example 16 b. The answer would differ if the business was an illegal drug operation. In this case, none of the expenses would be deductible. However, gross income could be reduced by the cost of goods sold of $100,000 (i.e., the cost of goods sold is viewed as a reduction in calculating gross income rather
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ch. 6 solutions - Chapter 6 33. Since these expenses relate...

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