To the Internal Revenue Service, the reasonableness of total itemized deductions depends on the taxpayer's adjusted gros

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To The Internal Revenue Service The Reasonableness Of Total Itemized Deductions Depends On The Taxpayer S Adjusted Gros 1 (56.29 KiB) Viewed 27 times

To the Internal Revenue Service, the reasonableness of total itemized deductions depends on the taxpayer's adjusted gross income. Large deductions, which include charity and medical deductions, are more reasonable for taxpayers with large adjusted gross incomes. If a taxpayer clair larger than average itemized deductions for a given level of income, the chances of an IRS audit are increased. Data (in thousands of dollars) on adjusted gross income and the average or reasonable amount of itemized deductions follow. Adjusted Gross Income ($1,000s) Itemized Deductions ($1,000s) 22 9.6 27 9.6 32 10.1 48 11.1 65 11.5 85 17.7 120 27.5 (a) Develop a scatter diagram for these data with adjusted gross income as the independent variable 30 30 25 25 20 20 20 15 25 20 151 & 10 15 15 .. 10 . . 10 10 5 5 5 5 0 60 O 0 0 20 40 60 80 100 120 100 Adjusted Gross Income ($1,000) 20 40 60 80 100 120 140 Adjusted Gross Income ($1,000) 20 40 60 80 100 120 100 Adjusted Gross Income ($1,000) 20 40 80 100 120 140 Adjusted Gross Income $1,000s) O (b) Use the least squares method to develop the estimated regression equation that can be used to predict itemized deductions (in $1,000s) given the adjusted gross income (in $1,000s). (Round your numerical values to three decimal places.) ý = | 0.175 7x+3.8569 (c) Predict the reasonable level of total itemized deductions (in $1,000s) for a taxpayer with an adjusted gross income of $47,500. (Round your answer to two decimal places.) $ 8349.6089 X thousand