Angel is self-employed. During the tax year, he had the following income and expenses:

Gross receipts, $90,500
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

1 answer

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.

Similar Questions
  1. Zoe's gross income is $16,960. His medical expenses for the yearamounted to $812.35. If he can deduct only the amount over 7
    1. answers icon 1 answer
    1. answers icon 1 answer
  2. Zoe's gross income is $16,960. His medical expenses for the yearamounted to $812.35. If he can deduct only the amount over 7
    1. answers icon 1 answer
  3. Zed's gross income is $21,375. His medical expenses for the yearamounted to $924.80. If he can deduct only the amount over 7
    1. answers icon 1 answer
more similar questions