Question

Agatha Jones (SSN 199-54-1116) owns a home based business, AJ Metal Works. She is an artist of metal fabricating. She employs several assistants and their labor cost is associated 75% in production and 25% of office and advertising. These cost will be allocated to COGS and regular expenses of the business.   The total cost of this labor for the year is $22,000.

In order to complete her reports, she utilizes a home based office. She recently purchased a home in which she converted part of the first floor to an office complex and uses the basement/garage as a manufacturing. The total square footage of the home is 1,900 sq. feet and the office utilizes 350 sq. feet and the garage is 500 sq. feet.

Gross income from the consulting business has provided income in the amount of $86,790. Cost of Goods includes inventory (beg.) $2,000, purchases of $5,600, supplies and materials $1,400, and ending inventory of $1,700. Expenses of the business (other than home office expenses) includes: $1,400 advertising, $700 professional fees, $350 office supplies, $200 travel, $300 meals, car and truck expenses $540, and licenses of $55.   Depreciation on the garage for Business $1,350.                                                      

Agatha incurs the following home office and manufacturing expenses:

Real Property taxes on residence                                                                              $3,610

Interest expense on residence                                                                                   4,900

Operating expenses of residence                                                                              3,950

Home Owner’s Insurance                                                                                             1,350

Repairs and Maintenance (on office only)                                                                  715

Depreciation on residence (based on 10% business use)                                     750

Carryover of Home Office Deduction from the prior year is $250.                                                                                                                                               

REQUIRED:

Prepare a Schedule C and calculate the Home Office Deduction using the regular method and preparing a Form 8829.

Are there any carryovers of this expense to later years?

Calculate the Home Office Deduction using the simplified method.

Which method provides the best option?

Answer 1

Gross Profit               $ 86,790

advertising                  $(1,400)

professional fees       $(700)

office supplies              $(350)

travel                           $(200)

meals,cars and truck     $(540)

licenses                        $(55)

property tax                   $(1615)

interest expenses           $(2192)

operating Expense       $(1767)

Repairs & Maintenance $(715)

Depreciation                   $(75)

Net Income                        $75531

Carry over deduction         $(250)

from prior period

net income using              $75281

regular   method

Using Simplified Method

property tax                   $(570)

interest expenses           $(1500)

operating Expense       $(1500)

Repairs & Maintenance $(715)

Depreciation                   $(75)

Net Income Using           $77535

Simpilfied Method

Using Regular method of Home Deduction is better than Simplified Method of Home Deduction