PROBLEMS
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

34. a. Carlton’s AGI is calculated as follows:
Gross income:
Salary income $72,000
Dividend income 4,000
Interest income 3,000 $79,000
Deductions for AGI:
Alimony paid $12,000
Traditional IRA contribution 3,000
Loss on sale of stock 900 (15,900)
Adjusted gross income $63,100
b. Itemized deductions:
Contributions to First Church $ 2,500
Real estate taxes on personal residence 1,800
Mortgage interest on personal residence 6,000
State income taxes 3,500
Total itemized deductions $13,800
Since the standard deduction for 2005 of $4,850 is less than Carlton’s itemized deductions of $13,800, he should itemize deductions in 2005. pp. 6-3 to 6-5

35. With IRA Contribution Without IRA Contribution
Gross income $10,200 $10,200
Contribution to IRA (3,000) (-0-)
AGI $ 7,200 $10,200
Itemized deductions:
Charitable contribution $ 2,000 $ 2,000
Medical expenses
[$2,200 – (7.5% X AGI)] 1,660 1,435
Casualty loss [($3,500 – $100) – (10% X AGI)] 2,680 2,380
Total itemized deductions $ 6,340 $ 5,815
Thus, the $3,000 IRA contribution would increase Julie’s itemized deductions by $525
($6,340 – $5,815). pp. 6-3 to 6-5 and Example 2

36. a. Drew and Cassie are trying to use the salaries to reduce the taxable income of
Thrush to zero ($800,000 – $400,000 – $300,000 – $100,000). By so doing, they can avoid the potential for double taxation.
b. If the salaries paid to the children are