Priscella Pursued a Hobby of Making Bedspreads in Her Spare

question 10

Multiple Choice

Priscella pursued a hobby of making bedspreads in her spare time. Her AGI before considering the hobby is $40,000. During the year she sold the bedspreads for $10,000. She incurred expenses as follows:
$\begin{array}{llr} \text { Supplies} &\$4,000\\ \text { Interest on loan to get business started } &500\\ \text { Advertising } &6,500\end{array}$

Assuming that the activity is deemed a hobby, how should she report these items on her tax return?

• A) Include $10,000 in income and deduct $11,000 for AGI.
• B) Ignore both income and expenses since hobby losses are disallowed.
• C) Include $10,000 in income, deduct nothing for AGI, and claim $11,000 of the expenses as itemized deductions.
• D) Include $10,000 in income and deduct interest of $500 for AGI.
• E) None of the above.

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Definitions:

Heavy Equipment

Larger, more specialized pieces of machinery used in construction, mining, and heavy industry, such as bulldozers, cranes, and excavators.

Sum-Of-The-Years-Digits

A depreciation method that results in a more accelerated write-off of assets than the straight-line method, involving adding the digits of the years of an asset's useful life.

Heavy Equipment

Large machinery used in construction, mining, and manufacturing, essential for executing large-scale tasks.

Sum-Of-The-Years-Digits

A method of accelerated depreciation where the asset’s cost is multiplied by a sequence of fractions representing the sum of the years’ digits.