Question

Randi qualifies for a home deduction. The amount of space devoted to business use is 400 square feet of the total 2,000 square feet of her home. Randi's mortgage interest and property taxes in total are $1,600. Other deductions properly allocated to the home office total $300. In addition, Randi purchases and uses supplies costing $200 during the year. Assume Randi earns income of $3,400 for the year before deducting any home office or supplies deduction. Assuming Randi uses the simplified method, calculate his home office deduction limitation and his actual home office deduction (ignore self-employment taxes).
Home office deduction limitation: $
Home office deduction: $

Answer 1

Home office deduction limitation: $ 3,200

Home office deduction: $1,500

Explanation:

The simplified method enables you to enter the tax-free part of any annuity payout. Divide the expenses from the cumulative annual fees you expect whether you make those after-tax donations.

A) $3,400 - $200 = $3,200

B) $1,500

Note: The IRS also adopted a simpler approach to the the ambiguity of the home office allowance.