Carol maintains an office in her home where she conducts a dressmaking business.
ID: 2342456 • Letter: C
Question
Carol maintains an office in her home where she conducts a dressmaking business. During the year she collects $4,000 from sales, pays $1,300 for various materials and supplies, and properly allocates $2,500 of rent expense and $500 of her utilities expense to the use of her home office. What amount of the rent and utilities expense may Carol deduct in the current year in computing her net income or loss from the dressmaking business?
a. $0
b. $500
c. $2,500
d. $2,700
e. $3,000
Please show your calculations and explain why you chose your answer. Thank you.
Explanation / Answer
The correct answer is option (d) i.e. $2,700 (4,000-1,300)
Rent expenses of $2,500 and utilities expense of $500 cannot be deducted since they are not for office use.