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HOMEWORK FOR CHP 6 -2

HOMEWORK FOR CHP 6 -2 - Question 42 A The effect of the...

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Question # 42 A. The effect of the illegal gambling business on Trevor’s AGI is as follows : Gross income = \$52,000 Deductible expenses: Salaries + payout to winners ( \$ 8,000 + \$29000) = (\$37000) Increase in AGI = \$15,000 the bribe to police of \$7,500 is not deductible since this expense violates public policy. Trevor also must include the tip income of \$16,000 in his gross income B. Trevor’s taxable income also increases by \$15,000 C. For an illegal drug activity, all of the expenses are not allowed. That’s why; illegal drug operation would increase Trevor’s AGI by \$52,000. However, the \$6,200 cost of goods sold is a reduction in calculating gross income rather than as an expense. Therefore, the illegal drug operation increases Trevor’s AGI by \$45,800 (\$52,000 – \$6,200). QUESTION # 53 First of all I will calculate the rental income ; Rental income = \$4,000 less-Taxes and interest (60/365 × \$5,856) = (963) REMINDER = \$3,037 Less: Utilities and maintenance (1/2 × \$2,600) = (1,300) Remainder = \$1,737 Less: Depreciation (\$3,500, limited to \$1,737) = (1,737) Net income from vacation home = \$ –0– Note that \$4,893 (\$5,856 total-- \$963 vacation home portion) of property taxes and mortgage interest on the vacation home are itemized deductions Income: Salary = \$43,000 Dividend = \$ 400

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