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
$87,500

Answer 1

Carlos' net profit is $67,155.

Calculation:
- Total expenses = 2,000 + 320 + 10,800 + 3,600 + 525 + 2,600 + 500 = $20,345
- Net profit = 87,500 - 20,345 = $67,155

(Note: the $500 in client gifts is fully deductible because each gift is $20, under the $25 per-donee business gift limit.)