Chris runs a business out of her home.She uses 500 square feet of her home exclusively for the business.Her home is 2500 square feet in total.Chris had $36,000 of business revenue and $32,000 of business expenses from her home business.The following expenses relate to her home: $\begin{array}{lr}
\text { Mortgage interest } & \$ 12,400 \
\text { Real estate taxes } & 1,800 \
\text { Repairs } & 3,200 \
\text { Utilities } & 2,600 \
\text { Insurance } & 650 \
\text { Depreciation (on business use portion of home) } & 1,750
\end{array}$ What is Chris' net income from her business and the amount of expenses carried over to the following year,if any?
Net income$\quad$$\quad$Carryover
a. $0$\quad$$\quad$$\quad$$\quad$$1,880
b. $0$\quad$$\quad$$\quad$$\quad$$0
c. $4,000$\quad$$\quad$$\quad$$4,130
d. $36,000$\quad$$\quad$$\quad$$0

Question

Quizplus · Accepted Answer

Chris' net income is calculated by subtracting her business expenses from her business revenue. The business expenses include both direct business expenses and a portion of the home expenses that are allocable to the business use of her home. The portion of home expenses allocable to the business is calculated based on the percentage of the home used for business (500 sq ft / 2500 sq ft = 20%). The total home expenses (excluding depreciation, which is already solely for business use) are $20,650. 20% of these expenses is $4,130. Adding the depreciation of $1,750 gives total home-related business expenses of $5,880. Chris' total business expenses are $32,000 (direct business expenses) + $5,880 (home-related business expenses) = $37,880. Since her business revenue is $36,000, she has a net loss of $1,880, which can be carried over to the following year. Therefore, her net income is $0, and she has $1,880 of expenses to carry over.

Chris Runs a Business Out of Her Home What Is Chris' Net Income from Her Business and the Square