Katie Operates a Ceramics Studio from Her Garage

question 38

Essay

Katie operates a ceramics studio from her garage. She incurs the following expenses:
Katie's gross receipts from her business were $2,000.
a.If the studio is deemed to be a hobby, then calculate the amount of expenses Katie may deduct, and describe how she may report the income and expenses on her tax return.
b.If the studio is not a hobby, then calculate the amount of expenses Katie may deduct, and describe how she may report the income and expenses on her tax return.

---

Definitions:

IRS Regulations

Rules and guidelines issued by the Internal Revenue Service that interpret and enforce federal tax code.

Vendor Payment

Vendor payment refers to the process of paying suppliers or vendors for goods or services received by a business.

Journal Entries

Records of financial transactions in the accounting system, detailing the accounts and amounts affected by each transaction.

Reports Center

A dedicated area in accounting software where various types of financial reports can be generated, viewed, and analyzed.