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?