Priscella Pursued a Hobby of Making Bedspreads in Her Spare

question 51

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:
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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:

Fixed Monthly Payments

Regular, unchanging payments made each month for a period of time, often used in loans and lease agreements.

Promissory Note

An investment vehicle that features a concrete promise by one entity to pay a definitive money amount to another, either upon solicitation or on a specified date.

Legal Due Date

The specific date by which a legal obligation must be satisfied, such as the payment of debts or completion of contractual duties.

Principal

The original sum of money borrowed in a loan or the amount of the investment.