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. How will these items affect Trevor’s AGI?
b. His taxable income?
c. If Trevor’s business was an illegal drug operation and the cost of the illegal drugs sold was $6,200, how would your answers to parts (a) and (b) differ?