Answer :
Rita's home office deduction be if business generated $10,900 of gross income instead of $15,900 would be $8,200.
What is gross income?
The total of all wages, salaries, profits, interest payments, rents, and other sources of income for both families and individuals, before any deductions or taxes, is known as gross income. Net income is determined as gross income less all taxes and other deductions. Net income is the inverse of gross income. A company's gross income is determined before deducting overhead, payroll, taxes, and interest payments. It is the difference between revenue and the cost of producing a good or providing a service. This is different from operating profit. Technically, gross margin should be used when discussing a percentage or ratio while gross profit should be used when discussing a monetary amount. To put it another way, gross profit is expressed in terms of money, whereas gross margin is expressed as a percentage.
Computation of Rita’s home office deduction for the current year if Gross income is $10,900:
Rita’s home office deduction will be limited to =300square feet × $5 application rate= $1,500.
However, she can deduct the expenses relating to interest and taxes = $6,700 as itemized deductions.
Thus, total deductions = $1,500+ $6,700 = $8,200.
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