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. (Answer for both the actual expense method and the simplified method). (Leave no answer blank. Enter zero if applicable.)

Also, assume that not counting the sole proprietorship, Rita’s AGI is $60,000.

Assume Rita’s consulting business generated $15,000 in gross income.

What is Rita’s home office deduction for the current year? $9100

What would Rita’s home office deduction for the current year be if her business generated $10,000 of gross income instead of $15,000?

Actual Expense Method is $6700

Simplified Method is ???????

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. (Answer for both the actual expense method and the simplified method). (Leave no answer blank. Enter zero if applicable.)

Explanation / Answer

Under Simplified method simply deduct $5 for every square foot of your home office. However, the deduction is capped at $1,500 per year; so it can only be used for offices up to 300 square feet.

Here Rita owns 500 Square feet then total deduction according to simplied method is calculated below:

= 500 × $5

= $2,500

But according to IRS rule under simplified method one can deduct maximum $1,500 in one year.

So home office deduction for the current year according to simplified mthod is $1,500.

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