Question

Gene is a self-employed taxpayer working from his home. His net business profit is $7,000 before home office expenses. His allocable home office expenses are $8,000 in total. How are the home office expenses treated on his current year tax return?
a. Only $7,000 of the office expenses can be deducted, the remaining $1,000 cannot be carried forward or deducted.b. All home office expenses can be deducted and will result in a $1,000 business loss.c. None of the home office expenses can be deducted because Gene's income is too high.d. Only $7,000 of the office expenses can be deducted; the remaining $1,000 can be carried forward to future tax years.

Answer 1

Answer:

D) Only $7,000 of the office expenses can be deducted; the remaining $1,000 can be carried forward to future tax years.

Explanation:

Since Gene's profit before home expenses is only $7,000, he can only deduct up to $7,000 for this year. That way his net profit will be $0. The remaining $1,000 must be carried forward so that he can use them in the future, probably next year he will add them to his deductions. If a business losses money, the government pay you anything, taxes only work one way, you have to pay.