Katie operates a ceramics studio from her garage. She incurs the following expenses:

Clay and paints

$3,500Painting technique seminars

400Pottery wheel

75Utilities for the ceramic studio

375Personal property taxes on ceramic equipment

50Katie's gross receipts from her business were $2,000.

a. If the studio is deemed to be a hobby, then calculate the amount of expenses Katie may deduct, and describe how she may report the income and expenses on her tax return.

b. If the studio isnota hobby, then calculate the amount of expenses Katie may deduct, and describe how she may report the income and expenses on her tax return.