1. “All income must be reported, and all deductions are allowed unless specifically disallowed in the Code.” Discuss.

2. LO.1 Aaron has AGI of $85,000 and deductions of $9,500. Does it matter to Aaron whether the deductions are for or from AGI? Why or why not?

3. LO.1 Michael earned $10,000 at the K-M Resort Golf Club during the summer prior to his senior year in college. He wants to make a contribution to a traditional IRA, but the amount is dependent on whether it reduces his taxable income. If Michael is going to claim the standard deduction, how much should he contribute to a traditional IRA?
 
4. LO.1 Classify each of the following expenditures as a deduction for AGI, a deduction from AGI, or not deductible:
a. Sam gives $5,000 to his father as a birthday gift.
b. Sandra gives $1,000 to her church.
c. Albert pays Dr. Dafashy $500 for medical services rendered.
d. Mia pays alimony of $12,000 to Bill.
e. Rex, who is self-employed, contributes $1,000 to his pension plan.
f. April pays expenses of $500 associated with her rental property.

5. LO.1 Classify each of the following expenditures as a deduction for AGI, a deduction from AGI, or not deductible:
a. Amos contributes to his H.R. 10 plan (i.e., a retirement plan for a self-employed individual).
b. Keith pays child support to his former wife, Renee, for the support of their son, Chris.
c. Judy pays for professional dues that are reimbursed by her employer.
d. Ted pays $500 as the monthly mortgage payment on his personal residence. Of this amount, $100 represents a payment on principal, and $400 represents an interest payment.
e. Lynn pays a moving company for moving her household goods to Detroit, where she is starting a new job. She is not reimbursed by her employer.
f. Ralph pays property taxes on his personal residence.

6. LO.1 Larry and Susan each invest $10,000 in separate investment activities. They each incur deductible expenses of $800 associated with their respective investments. Explain why Larry’s expenses might be properly classified as deductions from AGI (itemized deductions) and Susan’s expenses might be appropriately classified as deductions for AGI.

7. LO.1 Nanette is a first-grade teacher. Potential deductions are charitable contributions of $800, personal property taxes on her car of $240, and various supplies purchased for use in her classroom of $225 (none reimbursed by her school). How will these items affect Nanette’s Federal income tax return?