Richard operates a hair styling boutique out of his home. The boutique occupies 420 of the home's 1,200 square feet of floor space. Other information is as follows: $\begin{array}{lr}
\text { Gross income from the boutique } & \$ 10,000 \
\text { Supplies for the boutique } & \$ 2,400 \
\text { Depreciation on total residence } & \$ 12,000 \
\text { Utilities for total residence } & \$ 6,000
\end{array}$ 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 expenses proportional to the space used for business. The boutique occupies 35% of the home (420/1200). Therefore, he can deduct 35% of the depreciation and utilities. The deductible expenses are: Supplies: $2,400, Depreciation: $12,000 * 35% = $4,200, Utilities: $6,000 * 35% = $2,100. Total expenses: $2,400 + $4,200 + $2,100 = $8,700. Income: $10,000 - $8,700 = $1,300.

Richard Operates a Hair Styling Boutique Out of His Home