Question
Ms. Jill Jones wanted to start a home-based business that would specialize in selling t-shirts. The business would be operated from her principal residence. She
Ms. Jill Jones wanted to start a home-based business that would specialize in selling t-shirts. The business would be operated from her principal residence. She set aside 10% of the total floor space in the residence for the t-shirt operations.
Ms. Jill Jones principal residence, costing $990,000 in total, was acquired on January 1, 2018. It is estimated that $290,000 of this total value can be attributed to the land value.
Ms. Jill Jones incurred the following 2018 costs relating to the principal residence:
Utilities for the Home (Heat, Light, and Water) | $ 3,500 |
Mortgage Interest Paid | 8,000 |
House Insurance | 7,300 |
Property Taxes | 9,500 |
Repairs & Maintenance for the Home | 6,600 |
Total House Costs | $ 34,900 |
The business commenced operations on March 01, 2018. On that date, Ms. Jill Jones purchased the following assets to be used in her new business:
Office Furniture & Shelving | $ 50,000 |
Computer | 5,000 |
Business Software | 3,000 |
Total Purchases | $ 58,000 |
In addition, Ms. Jill Jones had a separate telephone line installed for dealing with the mail order business.
During the period March 1, 2018, through December 31, 2018, Ms. Jill Jones mail order sales totaled $500,000. Costs associated with these sales included the following:
Cost of Merchandise Purchased | $ 280,000 |
Unsold Merchandise at December 31, 2018 | 40,000 |
Packaging Materials | 10,000 |
Mailing Costs | 9,900 |
Office Supplies | 5,500 |
Telephone Charges | 4,300 |
Printing of Brochures | 20,000 |
Membership in Yacht Club | 9,000 |
Meals & Entertainment Costs | 8,000 |
Total Costs | $ 386,700 |
Required
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Can Ms. Jill Jones deduct work space in the home costs? Briefly explain your decision.
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Calculate Ms. Jill Jones 2018 minimum net business income or loss that she will report on her 2018 income tax return.
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Briefly discuss any issues that should be discussed with Ms. Jill Jones regarding the work space in her home and business costs.
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