**Required Information***[The following information applies to the questions displayed below.]*Rita owns a sole proprietorship in which she works as a management consultant. She maintains an office in her home (500 square feet) where she meets with clients, prepares bills, and performs other work-related tasks. Her business expenses, other than home office expenses, total $5,600. The following home-related expenses have been allocated to her home office under the actual expense method for calculating home office expenses:- **Real property taxes:** $1,600- **Interest on home mortgage:** $5,100- **Operating expenses of home:** $800- **Depreciation:** $1,600Also, assume that, not counting the sole proprietorship, Rita's AGI (Adjusted Gross Income) is $60,000. Rita itemizes deductions, and her itemized deduction for non-home business taxes is less than $10,000 by more than the real property taxes allocated to business use of the home.Assume Rita's consulting business generated $13,000 in gross income for the current year. Further, assume Rita uses the actual expense method for computing her home office expense deduction.---**c. What types and amounts of expenses will she carry over to next year?***Note: Leave no answer blank. Enter zero if applicable.*| | Amount ||----------------|------------------------|| Tier 1 expenses carried over to next year | || Tier 2 expenses carried over to next year | || Tier 3 expenses carried over to next year | |

Tier 1 expenses are the real property taxes and mortgage interest that are allocated to the home office based on the percentage of the home used for business. These expenses are fully deductible as itemized deductions on Schedule A, regardless of the business use of the home. However, the portion allocated to the home office reduces the amount that can be deducted on Schedule A. Tier 2 expenses are the operating expenses of the home, such as utilities, insurance, repairs, and maintenance, that are allocated to the home office based on the percentage of the home used for business. These expenses are deductible only to the extent of the net income from the business after deducting the other business expenses and the tier 1 expenses.Tier 3 expenses are the depreciation of the home that is allocated to the home office based on the percentage of the home used for business. These expenses are deductible only to the extent of the net income from the business after deducting the other business expenses, the tier 1 expenses, and the tier 2 expenses.Allocation of Tier 1, Tier 2, and Tier 3 expenses to current year's incomeGross Income13,000Less: Business expenses(5,600)Balance7,400Less: Tier 1 expenses ($1600 + $ 5100)(6,700)Balance700Less: Tier 2 expenses (i.e. operating expenses of home)(800)Balance(100)Rita uses the actual expense method for calculating home office expenses, so Tier 1 expenses are fully deductible as itemized deductions on Schedule A, regardless of the business use of the home. Hence, Tier 1 expense carried over will be $0. Tier 2 expense carried over will be $100 which is the excess of operating expenses over the gross income balance.Since there's no remaining balance from this year's income to cover depreciation expenses, the entire depreciation expense of $1,600 will be carried over to the next year as part of Tier 3 expenses.Hence, Tier 3 expense carried over will be $1,600.Expenses carried over to next year are as follows:Tier 1 expenses carried over to next year $0Tier 2 expenses carried over to next year $100Tier 3 expenses carried over to next year $1,600

Business

Accounting

c. What types and amounts of expenses will she carry over to next year? Note: Leave no answer blank. Enter zero if applicable. Tier 1 expenses carried over to next year Tier 2 expenses carried over to next year Tier 3 expenses carried over to next year Amount

c. What types and amounts of expenses will she carry over to next year? Note: Leave no answer blank. Enter zero if applicable. Tier 1 expenses carried over to next year Tier 2 expenses carried over to next year Tier 3 expenses carried over to next year Amount

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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2020 Tax Rate Schedules Single-Schedule X Head of household-Schedule Z If taxable of the If taxable of the income is: But not атоunt income is: But not атоunt Over- over- The tax is: over- Over- over- The tax is: over- $ 9,875 .........10% 2$ $ $ 14,100 .........10% 2$ 9,875 40,125 $ 987.50 + 12% 9,875 14,100 53,700 $ 1,410.00 + 12% 14,100 40,125 85,525 4,617.50 + 22% 40,125 53,700 85,500 6,162.00 + 22% 53,700 85,525 163,300 14,605.50 + 24% 85,525 85,500 163,300 13,158.00 + 24% 85,500 163,300 207,350 33,271.50 + 32% 163,300 163,300 207,350 31,830.00 + 32% 163,300 207,350 518,400 47,367.50 + 35% 207,350 207,350 518,400 45,926.00 + 35% 207,350 518,400 156,235.00 + 37% 518,400 518,400 154,793.50 + 37% 518,400 Married filing jointly or Qualifying widow(er)- Schedule Y-1 Married filing separately-Schedule Y-2 If taxable of the If taxable of the income is: But not атоunt income is: But not атоunt Over- over- The tax is: over- Over- over- The tax is: over- 2$ $ 19,750 .........10% $ $ $ 9,875…
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