Problem 6-40 (LO. 3)
Trevor, a friend of yours from high school, works as a server at the ST Café. He asks you to help him prepare his Federal income tax return.
When you inquire about why his bank deposits substantially exceed his tip income, he confides to you that he is a bookie on the side.
Trevor then provides you with the following documented income and expenses for the year:
Tip income
$16,000
Gambling income
$52,000
Gambling expenses
Payouts to winners
$29,000
Employee compensation
$8,000
Bribe to police officer who is aware of Trevor's bookie activity
$7,500
a. Complete the following to determine how the gambling items will affect Trevor's AGI (ignore the impact of self-employment taxes).
If an amount is zero, enter "0."
Gross income from gambling
Deductible expenses:
Salaries
Payouts to winners
Bribe to police officer
Subtotal
in AGI
b. How will all of these items affect Trevor's taxable income (ignore the impact of self-employment taxes)?
His taxable income
by $
