Richard operates a hair styling boutique out of his home.The boutique occupies 300 of the home's 1,200 square feet of floor space.Other information is as follows: $\begin{array}{lr}
\text { Gross income from the boutique } & \$ 10,000 \
\text { Supplies for the boutique } & \$ 2,000 \
\text { Depreciation on total residence } & \$ 12,000 \
\text { Utilities for total residence } & \$ 6,000
\end{array}$ What amount of income or loss from the boutique should Richard show on his return?

Question

Quizplus · Accepted Answer

Richard can deduct a portion of the home's expenses proportional to the space used for business. The boutique occupies 25% of the home (300/1200 square feet). Therefore, he can deduct 25% of the depreciation and utilities. Deductible expenses: Supplies: $2,000, Depreciation: $3,000 (25% of $12,000), Utilities: $1,500 (25% of $6,000). Total deductible expenses: $6,500. Income from boutique: $10,000. Income after expenses: $10,000 - $6,500 = $3,500.

Richard Operates a Hair Styling Boutique Out of His Home