Question

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

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.
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