1)Your client, Jane Smith, traveled to Las Vegas for a fun weekend with her friends from college. The first night she did well at the black jack table and won $2,000. Unfortunately, her luck turned and she lost $500 the second night and another $1,000 the third night of the trip. Your client has otherwise never gambled in her life, and thus has requested your help in the proper treatment of these gambling winnings and losses. What is the proper tax treatment? Are these winnings and losses included in taxable income?

2)Your client, Ricky Smith, works full-time as a computer programmer. In his spare time, Ricky makes custom wood cabinets and bookcases. Ricky started this hobby years ago when he and his wife had little furniture and storage in their home. Ricky’s skills and artistry improved through the years, and he now occasionally builds and sells pieces for family and friends. In fact, he now earns more revenue from his woodworking than his costs (e.g., costs of materials and supplies). He has come to you, his accountant, to find out whether the revenues from his hobby need to be reported on his Federal tax return. What is the proper tax treatment? Are the revenues and costs included in taxable income?

3)Your client, Pierre Latrell, recently received a tax penalty for failing to file his tax return. He was very upset to receive the penalty. However, he paid it and tells you that he is happy he will get a tax deduction for paying the penalty. Is this true? Can the penalty be deducted?

4)Your clients, Gary and Judy Olson, have 3 children. Their eldest child is currently enrolled in their first year of college. Their second child intends to enroll next year, and their youngest child expects to enroll at a university two years after. Gary and Judy are concerned about the rising costs of college tuition and the possibility of having 3 children enrolled in college at the same time. They are aware of the American Opportunity Credit (AOC) that helps taxpayers pay for the costs of higher education. Will Gary and Judy be able to claim the AOC? What requirements must be met?