Rocky has a full-time job as an electrical engineer for the city utility. In his
ID: 2634151 • Letter: R
Question
Rocky has a full-time job as an electrical engineer for the city utility. In his spare time, Rocky repairs TVs in the basement of his personal residence. Most of his business comes from friends and referrals from former customers, although occasionally he runs an ad in the local suburban newspaper. Typically the TVs are dropped off at Rocky's house and later picked up by the owner when notified that the repairs have been made.
The floor space of Rocky's residence is 2,500 square feet, and he estimates that 20% of this is devoted exclusively to the repair business. Gross income from the business is $12,000, and expenses (other than home office) are $5,000. Expenses relating to the residence are as follows:
Real property taxes $4,500
Interest on home mortgage $8,000
Operating expenses of residence $3,000
Depreciation (based on 20% business use) $500
What is Rocky's net income from the repair business?
Explanation / Answer
Business income $12,000
Less: Expenses (5,000)
--------------------
(7,000)
--------------------
Net business
income before
home office
expenses
Less:
Real property taxes ($4,500 * 20%) (900)
Mortgage interest ($8,000 * 20%) (1,600)
Operating expenses ($3,000 * 20%) (600)
Depreciation (500)
--------------------
(3,600)
--------------------
Net income from
repair business $ ( 7,000 - 3,600) 3,400
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