Alfredo Is Self-Employed and He Uses a Room in His

question 108

Essay

Alfredo is self-employed and he uses a room in his home as his principal place of business.He meets clients there and doesn't use the room for any other purpose.The size of his home office is 600 square feet.The size of his entire home is 3,000 square feet.During the current year, Alfredo received $10,000 of gross income from his business activities and he reports $7,500 of business expenses unrelated to his home office.For his entire home, he reported $10,000 of mortgage interest, $2,000 of property taxes, $2,500 of home operating expenses, and $4,500 of depreciation expense.What amount of home office expenses is Alfredo allowed to deduct in the current year? Indicate the amount and type of expenses he must carry over to next year, if any.

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Definitions:

Variable Costs

Costs that change in proportion to the level of production or business activity.

Shut Down

The process of ceasing operations, often temporarily, as a strategic or economic decision by a business.

Short Run

A period in economics where at least one input is fixed and cannot be changed.

Average Variable Costs

The total variable costs divided by the quantity of output produced. It represents the variable cost per unit of output.