Directions Donald is a selfemployed consultant who uses 25 o

Directions:

Donald is a self-employed consultant who uses 25% of his home exclusively as an office. Donald operates completely out of his home office and makes all of his appointments from the office as well as keeping his books and records in the office. Donald\'s gross income from his consulting business is $100,000 in 2017. He incurs $5,000 of expenses that are directly related to his business, such as computer and office supplies. Below are expenses that relate to Donald\'s residence for 2017 ?(Click the icon to view the expenses.) Read the requirements Requirement a. Which of the expenditures (if any) are deductible? Are they for AGI or from AGI deductions? Complete the table below to show the amount and classification of each expense as it relates to the home office expense deduction. (Enter a \"0\" if an amount is not deductible for the home office deduction.) Amount of Deduction Type of Deduction Direct business expenses 5,000 Indirect home office expenses Real estate taxes Mortgage interest Insurance Depreciation Repairs and utilities Total indirect home office expenses S 2,500 6,500 1,400 7,500 2,500 Total direct and indirect home office expense deduction

Solution

a. Deductible expenditure Amount of deduction Type of Deduction Direct Business expenses $5,000 For AGI Indirect Home office expenses: Real estate taxes ($2500 x 25%) $625 For AGI Mortgage interest ($6500 x 25%) $1,625 For AGI Insurance ($1400 x 25%) $350 For AGI Depreciation ($7500 x 25%) $1,875 For AGI Repair and utilities ($2500 x 25%) $625 For AGI Total indirect home office expenses $5,100 Total direct and indirect home office expense deduction $10,100 b. If he is an employee and maintaining an office at home just for his convenience home office expenses are not deductible for him If an employee maintain an office at home and meet clients and do business there, home office expenses are deductible from AGI under miscellenous itemized deduction