Question

Katie operates a ceramics studio from her garage. She incurs the following expenses:

Clay and paints $3500

Painting technique seminars 400

Pottery wheel 75

Utilities for the ceramic studio 375

personal property taxes on ceramic equipment 50

Katie's gross receipts from her business were $2,000.

Instructions: Answer the following questions.

1. If the studio is deemed to be a hobby, then calculate the amour of expenses Katie may deduct, and explain how she may report the income and expenses on her tax return.

2. If the studio is not a hobby, the calculate the amount of expenses Katie may deduct, and explain how she may report the income and expenses on her tax return.

Answer 1

solution:

Income and Expenses Details

PARTICULARS AMOUNTS
Income $ 2,000

Clay & paints $ 3500

Painting technique Seminars $ 400

Pottery Wheel $ 75

Utilities $ 375

Personal property taxes on ceramic $ 50

equipments

Profit/Loss ($2400)

a.

If there should be an occurrence of interest, Katie may deduct costs to the degree of $ 2000 simply because according to charge laws, any action not for benefit, and misfortunes from that movement may not be utilized to balance other salary. Further she can't convey forward the misfortunes for future years too.

b.

In the event of business, Katie may guarantee findings of the considerable number of costs and any misfortunes emerging out of the action against different business salary. Since all in all citizens are permitted to deduct conventional and fundamental business or exchange costs.