Mrs. Hess bakes wedding cakes as a hobby and has developed quite a local reputation for excellence. This year, she sold 29 cakes to family and friends for $200 each and spent a total of $1,700 on ingredients and decorations.
a. How much taxable income does Mrs. Hess’s hobby generate if her AGI before consideration of the hobby revenues and expenses is $33,000 and she doesn’t itemize deductions?
b. How would your answer change if Mrs. Hess pays enough state and local tax and makes enough charitable contributions to itemize deductions?