Question

Carlos is self-employed as a real estate agent. During the tax year, he had the following income and expenses:
Gross receipts, $87,500.
Advertising, $2,000.
Office expense, $320.
Rent, $10,800.
Insurance, $3,600.
Bookkeeping fees, $525.
Utilities, $2,600.
Housewarming gifts for clients, $500 (valued at $20 each).
What is Carlos' net profit (or loss) for the tax year?
$20,345
$67,155
$67,655

Answer 1

Net profit = Gross receipts − allowable business expenses.

Expenses:
- Advertising: 2,000
- Office expense: 320
- Rent: 10,800
- Insurance: 3,600
- Bookkeeping: 525
- Utilities: 2,600
- Client gifts: 500 (25 gifts × $20 each; under the $25 per-recipient limit, fully deductible)

Total expenses = 20,345

Net profit = 87,500 − 20,345 = 67,155

Answer: $67,155.