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 $5,600. The following home-related expenses have been allocated to her home office under the actual expense method for calculating home office expenses. (Leave no answer blank. Enter zero if applicable.) Real property taxes $ 1,600Interest on home mortgage 5,100Operating expenses of home 800Depreciation 1,600 Also, assume that not counting the sole proprietorship, Rita’s AGI is $60,000. Assume Rita’s consulting business generated $15,000 in gross income a. What is Rita’s home office deduction for the current year? (Answer for both the actual expense method and the simplified method).b. What would Rita’s home office deduction be if her business generated $10,000 of gross income instead of $15,000? (Answer for both the actual expense method and the simplified method).c. Given the original facts, what is Rita’s AGI for the year?d. Given the original facts, what types and amounts of expenses will she carry over to next year?

Respuesta :

Answer:

Explanation:

a. Computation of Rita’s home office deduction for the current year:

Actual expenses method, Rita is allowed to deduct all the expenses and the total deductions are =6,700+800+1,600 = $9,100.

Simplified method:

Rita’s home office deduction will be limited to =300square feet × $5 application rate= $1,500.

However, she can deduct expenses relating to interest and taxes = $6,700 as itemized deductions.

Thus, the total deductions = $1,500+ $6,700 = $8,200.

Take a look to the document attached.

b. Computation of Rita’s home office deduction for the current year if Gross income is $10,000:

Actual expenses method, Rita is allowed only mortgage interest and taxes and all other expenses relating to tire 2 and 3 are carried forward to next year.

Take a look to the document attached.

Simplified method:

Rita’s home office deduction will be limited to =300square feet × $5 application rate= $1,500.

However, she can deduct expenses relating to interest and taxes = $6,700 as itemized deductions.

Thus, the total deductions = $1,500+ $6,700 = $8,200.

c. Rita's AGI = Sole proprietorship income + income from business

= $60,000 + 300 = $60,300

d. Based on the above calculations Rita can deduct all the expenses in this year itself, thus she does not carry any expenses to next year.

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