To calculate Angel's net income from self-employment, we will first determine his total income and then subtract his allowable business expenses.
Step 1: Calculate Total Income
- Gross Receipts: $90,500
Step 2: Calculate Total Business Expenses
Now we will list and total up all the business expenses:
- Advertising: $2,000
- Office Expense: $320
- Rent: $10,800
- Liability Insurance: $3,600
- Bookkeeping Fees: $525
- Utilities: $2,600
- Business Meals with Clients: $1,000
Total Expenses Calculation
\[ \text{Total Expenses} = \text{Advertising} + \text{Office Expense} + \text{Rent} + \text{Liability Insurance} + \text{Bookkeeping Fees} + \text{Utilities} + \text{Business Meals} \] \[ \text{Total Expenses} = 2,000 + 320 + 10,800 + 3,600 + 525 + 2,600 + 1,000 \] \[ \text{Total Expenses} = 2,000 + 320 + 10,800 + 3,600 + 525 + 2,600 + 1,000 = 20,845 \]
Step 3: Calculate Net Income
Now, we will subtract the total expenses from the gross receipts to find the net income.
\[ \text{Net Income} = \text{Gross Receipts} - \text{Total Expenses} \] \[ \text{Net Income} = 90,500 - 20,845 = 69,655 \]
Result
Angel's net income from self-employment for the tax year is $69,655.
Notes:
- Business Meals: Generally, only 50% of business meal expenses are deductible, which means that out of the $1,000 spent on business meals, only $500 would be allowed as a deductible expense.
Adjusting the calculation for this deduction:
- Deductible Business Meals: $500
- New Total Expenses: \[ 20,845 - 1,000 + 500 = 20,345 \]
- New Net Income: \[ 90,500 - 20,345 = 70,155 \]
So, the adjusted net income considering the meal deduction would be $70,155.
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