Priscella Pursued a Hobby of Making Bedspreads in Her Spare $\begin{array}{lr}\text { Supplies }&\$4,000\\\text { Interest on loan to get business started } & 500 \\\text { Advertising } & 6,500\end{array}$

question 78

Multiple Choice

Priscella pursued a hobby of making bedspreads in her spare time. Her AGI before considering the hobby is $40,000. During 2019 she sold the bedspreads for $10,000. She incurred expenses as follows: $\begin{array}{lr}\text { Supplies }&\$4,000\\\text { Interest on loan to get business started } & 500 \\\text { Advertising } & 6,500\end{array}$ 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 nothing.
• E) None of these.

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Definitions:

Geometric Series

A sequence of numbers where each term after the first is found by multiplying the previous one by a fixed, non-zero number called the common ratio.

Infinite

Without limit or end; extending beyond measure or comprehension.

Terms

Conditions and stipulations that are specified as part of an agreement or contract.

Rational Investor

An individual who makes decisions by maximizing expected utility, based on consistent preferences and available information.