Question

[The following information applies to the questions displayed below.] 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 $5,960. The following home-related expenses have been allocated to her home office under the actual expense method for calculating home office expenses. Real property taxes $ 1,780 Interest on home mortgage 5,370 Operating expenses of home 890 Depreciation 1,708

Also, assume that, not counting the sole proprietorship, Rita’s AGI is $63,600. Assume Rita’s consulting business generated $15,900 in gross income. (Leave no answer blank. Enter zero if applicable.) rev: 10_31_2018_QC_CS-146132

c. Given the original facts, what is Rita’s AGI for the year?

Answer 1

c.

We will first compute her net income:

Gross income	15,900.00
Less: busines expense	5,960.00
Balance	9,940.00
Less: Tier 1 expenses (interest 5370 + property tax 1780)	7,150.00
Balance after tier 1 expenses	2,790.00
less: tier 2 expenses (operating expenses)	890.00
Balance after tier 2 expenses	1,900.00
less: tier 3 expenses (depreciation)	1,708.00
Net income from business	192.00

Thus Rita's AGI = AGI without the sole proprietorship + net income from the business

= 63600+192

= $63,792