Question

Tomas began his unincorporated business on January 1, 2019. During 2019, he received $40,000 cash in revenues and paid $33,000 for operating expenses. On December 31, 2019 one of his customers owed him $1,200 and Tomas owed one of his suppliers $2,300. In addition to the operating expenses, Tomas can also deduct one-third of his house costs since he operates his business out of the ground floor of his rented 3-storey home. Total house costs for 2019 were: rent of $19,200; insurance of $800; utilities of $2,100. Tomas’ maximum work space in the home expense deduction for 2019 is:

Answer 1

The work space meets the IRS requirements as

The business is for profit, This space is the principal place of business and the space is regularly and exclusively for business.

Total House costs = $19,200 + $800 + $2,100 = $22,100

Deduction available = $22,100/3 = $7,367

Gross business income = Cash revenue + Receivables - Operating expense - Payables = $5,900

Gross business income is less than total amount of business deduction.Thus deduction should be limited acording to the following.

Gross business - Rent of business = $5,900 - $22,100/3 = -$1,467

Maximum deduction = $5,900