Rita owns a sole proprietorship in which she works as a management consultant. S

Question

Rita owns a sole proprietorship in which she works as a management consultant. She maintains an office in her home (500 square feet) where she meets with clients, prepares bills, and performs other work-related tasks. Her business expenses, other than home office expenses, total $5,600. The following home-related expenses have been allocated to her home office under the actual expense method for calculating home office expenses.

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.

Assuming the original facts, what types and amounts of expenses will she carry over to next year?

Tier 2 operating expenses: ???? ($1,500 and -0- are not correct)

Tier 3 depreciation expenses: $(1,600)

Rita owns a sole proprietorship in which she works as a management consultant. She maintains an office in her home (500 square feet) where she meets with clients, prepares bills, and performs other work-related tasks. Her business expenses, other than home office expenses, total $5,600. The following home-related expenses have been allocated to her home office under the actual expense method for calculating home office expenses.

Explanation / Answer

Gross Total Income

$13000

Less Business Expenses

$5600

Balance

$7400

Less Tier 1 Expenses(Interest $5100+ Taxes $1600)

$6700

Profit After tier 1 Expenses

$700

Less Tier 2 Expenses ($800 before limit)

$700

Balance after Tier 2 Expenses

$0

Less Tier 3 Expenses($1600 before limit)

$0

The Expenses Rita Carried over to Next Year

1.       Tier 2 Expenses                 =             $100

2.       Tier 3 Expenses                 =             $1600

Gross Total Income

$13000

Less Business Expenses

$5600

Balance

$7400

Less Tier 1 Expenses(Interest $5100+ Taxes $1600)

$6700

Profit After tier 1 Expenses

$700

Less Tier 2 Expenses ($800 before limit)

$700

Balance after Tier 2 Expenses

$0

Less Tier 3 Expenses($1600 before limit)

$0

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