chapter 14 pre-built problems6
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10/31/2015 Chapter 14 Pre-Built Problems
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6. value:
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Chapter 14 Pre-Built Problems instructions | help
Rita owns a sole proprietorship in which she works as a management consultant. She maintains an officein her home (500 square feet) where she meets with clients, prepares bills, and performs other work-relatedtasks. Her business expenses, other than home office expenses, total $5,600. The following home-relatedexpenses have been allocated to her home office under the actual expense method for calculating homeoffice expenses.
Real property taxes $1,600 Interest on home mortgage 5,100 Operating expenses of home 800 Depreciation 1,600
Also, assume that not counting the sole proprietorship, Rita’s AGI is $60,000.
Assume Rita’s consulting business generated $13,000 in gross income for the current year. Further,assume Rita uses the actual expense method for computing her home office expense deduction.
a. What is Rita’s home office deduction for the current year?
Home office deduction
b. What is Rita’s AGI for the year?
AGI
c. Assume the original facts, except that Rita is an employee, and not self-employed (she uses the homeoffice for the convenience of the employer). Consequently, she does not receive any gross income fromthe (sole proprietorship) business and she does not incur any business expenses unrelated to the homeoffice. Finally, her AGI is $60,000 consisting of salary from her work as an employee. What effect doher home office expenses have on her itemized deductions?
Itemized deduction
d. Assuming the original facts, what types and amounts of expenses will she carry over to next year?
Megan ReedSpilker, Taxation of Individuals and BusinessEntities, 6e Library Course: ACCT 615 Summer2015 D
10/31/2015 Chapter 14 Pre-Built Problems
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Amounts of expenses
Tier 2 operating expenses
Tier 3 depreciation expenses
Problem Difficulty: 2 Medium Learning Objective: 14-06 Describe the requirementsnecessary to qualify for home office deductions andcompute the deduction limitations on home officedeductions.
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