Question

Alex, who is single, conducts an activity in 2021 that is appropriately classified as a hobby. The activity produces the following revenues and expenses: Revenue $18,000 Property taxes 3,000 Materials and supplies 4,500 Utilities 2,000 Advertising 5,000 Insurance 750 Depreciation 4,000 Without regard to this activity, Alex's AGI is $42,000. Determine the amount of income Alex must report and the amount of the expenses he is permitted to deduct. Assume Alex itemizes his deductions. Reportable income: $fill in the blank 1 Deductible expenses: $fill in the blank 2

Answer 1

Alex, who is single, conducts an activity in 2021 that is appropriately classified as a hobby.  The amount of income that Alex must report and the amount of the expenses he is permitted to deduct are:

• Income $18,000

• Expenses $3,000

An activity or business  is classified as hobby :

• The owner of the business is not making profit from the business
• When their is no proof as to whether the business owner is making profit
• When the owner does not intend to make profit from the business etc

Based on the given information the revenues or income amount of $18,000 will be the  amount that will be reported by Alex  as part of the gross income.

While the expenses or  property taxed amount of $3,000 is deductible because the deductions are itemized deductions.

Inconclusion Alex, who is single, conducts an activity in 2021 that is appropriately classified as a hobby.  The amount of income that Alex must report and the amount of the expenses he is permitted to deduct are:

• Income $18,000

• Expenses $3,000

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