John Weber on tue 4 nov 97
As a new potter, trying to figure it all out, I wonder if any of the "old
timers" have any advice on how they come up with their expenses for tax
purposes. Specifically, I am referring to the cost basis in the pieces you
sell. I am aware of some of the rules regarding capital assets and
depreciation for them, but the rest of it seems more difficult. For example,
when do you deduct the cost of glaze chemicals? When you buy the chemical,
when you mix the glaze, or when you glaze the pot? Similar questions come up
for Clay and other items that actually go into the end product. Then there
are the small tools, bubble wrap, paper bags, etc. that may or may not get
all used up in the current year. If any of you have any general suggestions,
I won't take it as Tax advice, I would appreciate it. Ultimatley I'll end up
at the accountants office but I wanted to try those experienced in the field
first. Thanks.
Rick Sherman on wed 5 nov 97
----------------- Original Message from John Weber--------------------
As a new potter, trying to figure it all out, I wonder if any of the
"old timers" have any advice on how they come up with their expenses
for tax purposes. Specifically, I am referring to the cost basis in
the pieces you sell. I am aware of some of the rules regarding capital
assets and depreciation for them, but the rest of it seems more
difficult. For example, when do you deduct the cost of glaze
chemicals? When you buy the chemical, when you mix the glaze, or when
you glaze the pot? Similar questions come up for Clay and other items
that actually go into the end product. Then there are the small tools,
bubble wrap, paper bags, etc. that may or may not get all used up in
the current year. If any of you have any general suggestions,
I won't take it as Tax advice, I would appreciate it. Ultimatley I'll
end up at the accountants office but I wanted to try those experienced
in the field
first. Thanks.
-------------------------------reply---------------------------------
John: I guess you can classify me as an "old timer" even if I do hate
the concept. You have a computer and make it your financial tool. I
keep books for my business, my wifes's business, a vaction rental we
own and operate and our personal accounts. I use a version of MS Works,
others use Quicken or other acounting software. Keep entries up to
date. It is wise to use a CPA if you have lots of detail to keep track
of. I provide information to mine in January and we file in February.
The more organized the information I provide, the less it costs me for
his services. His advice on deductions and office space in the home is
invaluable.
You can depreciate equipment over 3-5 years. Get the CPS's advice. All
materials and equipment used in making and shipping your work is
deductible: clay, glaze materials, bags, boxes, wrapping paper, etc.
Also deduct all office supplies used exclusively for the business.
Phone fax and a percent of use of the computer can be deducted. Costs
for subscribing to Clayart add to your professional knowledge. If the
IRS asks, show them printed copy for the list, like the Beautiful Pot.
Then there is fuel and electricity. If your studio and house are on
the same meter and you can't get separate meters, compare power use
when not using kilns with that when you do. Keep records of firings.
Don't neglect travel. Keep a records of milage traveled for business
and deduct as percentage of total vehicle consts, gas, repair, etc.
Deduct texts and tapes, workshops and other costs to improve you
knowledge and skills. Don't forget, NCECA is deductible - especially
if you visit Mel's Clayart room.
This is how I approach it and I was audited by the IRS one year and I
won! I won!
RS
San Jose, CA
Jeremy/Bonnie Hellman on sun 9 nov 97
John-
Specifically about the cost basis in the pieces you sell. For tax
purposes you aren't figuring out the cost of materials, etc. (aka cost of
goods sold) for each piece. For tax purposes you are figuring this for
each tax year.
You keep track of your inventory of raw materials, work in process and
unsold pots. You know what you purchased in any given year. Your ending
inventory (at the end of your tax year, you take an inventory of what's
left) is what you DON'T GET TO DEDUCT. Everything else becomes a
deduction. In theory, you would know the cost of each bucket of glaze and
could compute the cost of what's left at the end of the year. In theory,
you also know the cost of each bag of ingredient and could figure out
how much is left at year end and thus compute the cost of the amount
remaining. At some point (in theory) you have computed the average cost
of materials in each pot, and can compute the value of the materials in
any pots that remain unsold at year end.
The Schedule C of form 1040 has lines for Cost of Goods Sold which
includes beginning inventory, purchases of materials, and ending
inventory. (Last year's ending inventory becomes this year's beginning
inventory.)
>Subject: Income Taxes - Potters
>Sent: 11/4/97 8:49 AM
>Received: 11/4/97 9:46 AM
>From: John Weber, JODO96@aol.com
>Reply-To: Ceramic Arts Discussion List, CLAYART@LSV.UKY.EDU
>To: Multiple recipients of list CLAYART, CLAYART@LSV.UKY.EDU
>
>----------------------------Original message----------------------------
>As a new potter, trying to figure it all out, I wonder if any of the "old
>timers" have any advice on how they come up with their expenses for tax
>purposes. Specifically, I am referring to the cost basis in the pieces you
>sell. I am aware of some of the rules regarding capital assets and
>depreciation for them, but the rest of it seems more difficult. For example,
>when do you deduct the cost of glaze chemicals? When you buy the chemical,
>when you mix the glaze, or when you glaze the pot? Similar questions come up
>for Clay and other items that actually go into the end product. Then there
>are the small tools, bubble wrap, paper bags, etc. that may or may not get
>all used up in the current year. If any of you have any general suggestions,
>I won't take it as Tax advice, I would appreciate it. Ultimatley I'll end up
>at the accountants office but I wanted to try those experienced in the field
>first. Thanks.
"Outside a dog, a book is a man's best friend. Inside a dog, it's too
dark to read" Groucho Marx
" " Harpo Marx
"Time flies like an arrow. Fruit flies like an avocado" Att. to GM
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