Question

B, a barber, is a sole proprietor who uses a room in his residence regularly and exclusively to meet with customers in the normal course of his trade or business throughout Year 1. B determines that room is 350 sq. ft. and has a cost basis of $10,000. B placed the room in service on January 1, Year 1. B depreciates the room under Sec. 168 as nonresidential real property using the optional depreciation table that corresponds with the general depreciation system, the straight-line method of depreciation, a 39-year recovery period, and the mid-month convention. During the year, B earns $9,000 of gross income from the business and pays the following business expenses:

Supplies $1,500
Advertising 800
Professional fees 300
Magazines/Subscriptions 700
Postage 100
Total $3,400
B also pays the following expenses related to his home during the year:
Mortgage interest $10,000
Real property taxes 3,000
Homeowners' insurance 1,500
Utilities 2,400
Repairs 900
Total $17,800
Using the simplified option, what amount will B report on Schedule C as "Expenses for business use of your home...?
A. $0
B. $1,500
C. $3,400
D. $13,000

Answer 1

Under the simplified option for deducting expenses for business use of a home, B will report $1,500 on Schedule C as expenses.

Step-by-step explanation:

The answer to this question can be found by understanding the rules for deducting expenses for business use of a home using the simplified option. Under this option, the taxpayer can deduct $5 per square foot of the home used for business, up to a maximum of 300 square feet. In this case, since the room used by the barber is 350 sq. ft., the taxpayer can only deduct expenses for 300 sq. ft., which amounts to $1,500 (300 sq. ft. x $5 per sq. ft.). This means that the correct answer is B. $1,500.