Question

Rita owns a sole proprietorship in which she works as a management consultant. She maintains an office in her home (500 square feet) where she meets with clients, prepares bills, and performs other work-related tasks. Her business expenses, other than home office expenses, total $5,780. The following home-related expenses have been allocated to her home office under the actual expense method for calculating home office expenses.

Real property taxes	$	1,690
Interest on home mortgage		5,235
Operating expenses of home		845
Depreciation		1,654

Also, assume that, not counting the sole proprietorship, Rita’s AGI is $61,800.

Assume Rita’s consulting business generated $15,450 in gross income. (Leave no answer blank. Enter zero if applicable.)

b. What would Rita’s home office deduction be if her business generated $10,450 of gross income instead of $15,450? (Answer for both the actual expense method and the simplified method.)

Answer 1

b. What would Rita’s home office deduction be if her business generated $10,450 of gross income instead of $15,450? (Answer for both the actual expense method and the simplified method.)

Actual expense method :-

Particulars	Anmout
Gross Income	$10,450
Business expenses	$5,780
Balance	= $10,450 - $5,780 = $4,670
Tier 1 expenses	= $1,690 + $5,235 = $6,925
Balance after tier 1 expenses	= $4,670 - $6,925 = ( $2,255)
Tier 2 expenses	$0
Balance after tier 2 expenses	= $2,255 - $0 = $2,255
Tier 3 expenses	$0
Net income from business	= $2,255 - $0 = $2,255

Simplified method :-

• Under the disentangled technique, Rita would be restricted to a home office cost conclusion of $2,500 (500 square feet x $5 application rate), however she would have $6,925 more for separated derivations for home loan intrigue and assessments .

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