Richard operates a hair styling boutique out of his home. The boutique occupies 420 of the home's 1,200 square feet of floor space. Other information is as follows:

Gross income from the boutique $10,000

Supplies for the boutique $ 2,400

Depreciation on total residence $12,000

Utilities for total residence $ 6,000

What amount of income or loss from the boutique should Richard show on his return?

a.$3,500 income

b.$1,300 income

c.$0 income or loss

d.$10,400 loss

e. None of these choices are correct.

b. $1300 income

Explanation:

Apportionment rate = 420/1200 square feet = 35% attributable to the boutique.

Amount of income from the boutique would be all the income receipts as reduced by all the qualifying expenses relating to the business.

So, Richard's income from the boutique would be computed as under:

= $10,000 gross income - $2400 supplies expense - Depreciation attributable to boutique i. e 35% of $12,000 - utilities expenses attributable to boutique i. e 35% of 6000

= $10,000 - 2400 - 4200 - 2100

= $1300 income