Brad Sondahl on wed 17 jan 01
I've finally succumbed to the complexity of byzantine IRS rules and
started using a tax program to figure my taxes. It points me to
declaring expenses for a home office, but it looks like this is more
appropriate to, as stated, a home office, than a whole business run from
the home. Specifically, it bases the amount of deductions you can take
on the ratio of the square footage of the business area to the rest of
the house. This doesn't take into account the sizable energy costs
which I can estimate accurately for my kiln, but would otherwise only be
a ratio of our whole electrical bill.
So, to Bonnie, or other wise and qualified accountants, is there another
way to declare expenses of running our pottery businesses from our home,
or is this the only way?
Like most of us small time operators, I have a single electric meter,
and even only one phone, and several well defined separate areas used
solely by my business, for manufacture, storage, and sales.
Thanks for your advice...
Brad Sondahl
--
For original art, music, pottery, and literature, visit my homepage
http://pages.about.com/bsondahl
Pottery homepage http://sondahl.safeshopper.com
Carolyn Nygren Curran on thu 18 jan 01
Brad...I take off .1714% of our electric bill for my pottery business, but I
also include "firing costs" in the miscellaneous expense column as well. I
have done it for years using an estimated figure, and I have never had
anyone question that. The percentage they allow for a home business does
not take a kiln into consideration, so I add it. It is my opinion that if
you are honest and above board in your schedule C, you can also use non IRS
logic in filling out the return for an expense like this. It's legit, it's
just not something that the IRS can put into its regulations since we
potters are a drop in the IRS bucket. Cheers, CNC
PS This year I will be taking off the.1714% of the exterminators' fee for
carpenter ants in the house. There are all sorts of things which may be
deductible. (I don't use a computer program---just keep on doing Schedule C
each year since '72)
Robert Santerre on thu 18 jan 01
Ok, are you going to tell us how you arrived at .1714%? Do you really mean
0.1714%? If so, that 4th decimal point would amount to $0.04 if you had a
$10,000.00 electrical bill, hardly worth the trouble to do the calculation.
Bob
////////////////////////////////////////////////////////////////////////////////////////////////////
Carolyn Nygren Curran wrote:
> Brad...I take off .1714% of our electric bill for my pottery business, but I
> also include "firing costs" in the miscellaneous expense column as well. I
> have done it for years using an estimated figure, and I have never had
> anyone question that. The percentage they allow for a home business does
> not take a kiln into consideration, so I add it. It is my opinion that if
> you are honest and above board in your schedule C, you can also use non IRS
> logic in filling out the return for an expense like this. It's legit, it's
> just not something that the IRS can put into its regulations since we
> potters are a drop in the IRS bucket. Cheers, CNC
> PS This year I will be taking off the.1714% of the exterminators' fee for
> carpenter ants in the house. There are all sorts of things which may be
> deductible. (I don't use a computer program---just keep on doing Schedule C
> each year since '72)
>
> ______________________________________________________________________________
> Send postings to clayart@lsv.ceramics.org
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> You may look at the archives for the list or change your subscription
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Gary Elfring on fri 19 jan 01
>This doesn't take into account the sizable energy costs
>which I can estimate accurately for my kiln, but would otherwise only be
>a ratio of our whole electrical bill.
>So, to Bonnie, or other wise and qualified accountants, is there another
>way to declare expenses of running our pottery businesses from our home,
>or is this the only way?
Easy answer! Think of it this way. If you run your business from your home
and you have a separate business phone line, do you get to deduct the cost
of that phone line? Obviously yes- it's a separate expense.
I've been running a computer business from my home for 12 years. The deduction
for office space only covers the "space" itself, not the utilities. I deduct
proportions of the bills for trash pickup, electricity, and natural gas. (We
have a well and septic field, or I would be deducting water and sewage too!)
The percentage of each bill I deduct varies depending on the type of bill. I
measured how much of the trash comes from my office. All the computer equipment
eats up more electricity then any other room (or two) in the house, and my
office is very well insulated and uses little heat, so that deduction is
smaller.
Elfring Fonts, Inc Bar Codes, MICR, and decorative fonts for Windows
http://www.elfring.com
Katie Cordrey on tue 6 feb 01
A couple of notes about 1040 home office...
It is my understanding that storage space does not have to be "exclusive
use" but office space does.
The IRS actually offers some very helpful information online:
General Small Business Frequently Asked Questions
http://www.irs.gov/bus_info/index.html
In Home Business Frequently Asked Questions
http://www.irs.gov/tax_edu/faq/faq-kw95.html
Home Office Frequently Asked Questions
http://www.irs.gov/tax_edu/faq/faq-kw97.html
AND you can request a very nice to have free CD that runs on your computer.
It gives tons of advice and help for small business. It is called the Small
Business Resource Guide 2000
http://www.irs.gov/bus_info/sm_bus/smbus-cd.html
You might also consult About.com
http://home.about.com/smallbusiness/index.htm?rnk=c3&terms=Home+Business
-----Original Message-----
From: Snail Scott [SMTP:snail@MINDSPRING.COM]
Sent: Tuesday, February 06, 2001 8:39 AM
To: CLAYART@LSV.CERAMICS.ORG
Subject: Re: 1040 home office--shop/sales area question
At 09:46 PM 2/5/01 -0500, you wrote:
>
>The home office as discussed by the IRS refers to any business conducted
>from the home, used "regularly and exclusively" for the business. Your
>ceramics business does not have to be a separate room or rooms, but can be
a
>section of a room, but it MUST be used regularly and exclusively.
>Bonnie
There are a few aspects of the 'home office'
deduction that I'd like to have confirmed,
if Bonnie or any other knowledgable person
would care to respond.
First: You can't take the deduction if any
household (non-business) activity takes
place in the space, or if you have to walk
thorough the space to get to a non-business
space. (i.e. you can't have a closet full of
garden tools in a corner of the studio. Since
you would have to walk through the studio to
get to the tools, the whole studio would be
disallowed.) I heard this from an accountant.
It is my understanding that you can still deduct the studio space, but not
the tools corner. If it makes you feel better, measure it and make a
sketch. I keep a sketch in my tax file along with a copy of my real estate
appraisal and related documents. If you recently financed or refinanced
your home, you are entitled to a copy of the appraisal and should request
it. You'd be surprised at how useful it can be!
Second: If you pay a mortgage, you can only
deduct the percentage from the principal of
your payment. Since my mortgage is fairly new,
only about 10% of my mortgage payment goes to
principal, so I'd be deducting a small fraction
of an already small number.
It adds up. Every dollar of expense reduces the dollars of gain and your
tax liability. In addition, you get to deduct a percentage of utilities,
maintenance, etc..
Third: Does my garage-studio count? It wasn't
counted in the square footage of the house when
I bought it, so how can I deduct its square
footage from my house payment? Can I deduct it
at the same rate as the 'habitable spaces' in
house? Sure, I know that payment covers the
yard, and the driveway, too, but I couldn't
deduct those either, could I?
-Snail
If you have converted your garage to a studio, the entire cost of the
conversion may be a basis for deductions. It's going to depend on the
extent to which you did the conversion and the relationship of your garage
to your living quarters. I converted my 2 bay carport by adding walls and
heat and water and electricity. Since the space is technically "attached"
to my house, the cost of the conversion was added to the asset value of my
home to update the depreciation basis. I now take a deduction for this
space as well. If the space is in a detached building, the deduction rules
are different. I built a marketing shed for storing and selling my work. It
is 100% deductible in my business even though it is on my homestead
property. It's worth discussing the details with your tax professional, or
educating yourself on the IRS site. You can also call them for advice and
assistance. Be sure to keep the name of the person you talk to, the date,
and the content of the conversation. If they give you bad advice and you
make an error on your tax return because of it, you can often have fines
and interest waived by presenting the information. It is good business to
take all the deductions you are entitled to. Even little ones really add
up!
________________________________________________________________________
______
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Jeremy/Bonnie Hellman on tue 6 feb 01
Hi Snail,
The governing words "regularly and exclusively" are the first hurdles to
deducting a "home office". It does not have to be an entire room of your
house-- a section of your room becomes your office space. In theory if you
have a closet full of garden tools, not used in your ceramics business, that
section of the room does not qualify.
As for the exclusive definition, I have to say that I have not researched
this issue, but most people seem to have a sense of whether or not they use
an area exclusively.
Does it mean that if a friend comes into your studio and you discuss
non-business topics that you lose your deduction for the office? Or if your
child comes into the studio and plays with clay with a friend that you lose
the deduction? Of course not! On the other hand, if I were sitting in an IRS
audit, I wouldn't bring up those times when non-business activities might
occasionally occur.
Can I claim my dining room table because even though the family eats dinner
on it, I use it 8 hours a day for my business? The answer here is clear:
"NO!" I am not using it exclusively for my business, even though I am using
it regularly.
I think you got the mortgage deduction backwards. It's only the interest on
a mortgage that is deductible. Normally this goes on your Schedule A,
Itemized Deductions, but when you have a Schedule C business, the portion
that is your home office deduction goes on your Schedule C, and the balance
appears on your Schedule A. The newer the mortgage, the greater the
deduction compared to later years of the mortgage, when you've paid down a
lot of the loan (principle).
If you are using your garage studio as a room of the house, by having a
studio there, using it regularly and exclusively, it's a room. Same as a
basement. It doesn't matter what the mortgage lender looked at, or what your
local tax appraiser looks at, we're discussing your income taxes here. If
you are considering the garage studio as part of the "house" then you will
include the square footage in your total area of the house, and that garage
studio area will be the area you use in the numerator of the fraction that
determines what percent is your "home office."
Bonnie
Bonnie Hellman, CPA in PA & CO
>> The home office as discussed by the IRS refers to any business conducted
>> from the home, used "regularly and exclusively" for the business. Your
>> ceramics business does not have to be a separate room or rooms, but can be a
>> section of a room, but it MUST be used regularly and exclusively.
>> Bonnie
>
> There are a few aspects of the 'home office'
> deduction that I'd like to have confirmed,
> if Bonnie or any other knowledgable person
> would care to respond.
>
> First: You can't take the deduction if any
> household (non-business) activity takes
> place in the space, or if you have to walk
> thorough the space to get to a non-business
> space. (i.e. you can't have a closet full of
> garden tools in a corner of the studio. Since
> you would have to walk through the studio to
> get to the tools, the whole studio would be
> disallowed.) I heard this from an accountant.
>
> Second: If you pay a mortgage, you can only
> deduct the percentage from the principal of
> your payment. Since my mortgage is fairly new,
> only about 10% of my mortgage payment goes to
> principal, so I'd be deducting a small fraction
> of an already small number.
>
> Third: Does my garage-studio count? It wasn't
> counted in the square footage of the house when
> I bought it, so how can I deduct its square
> footage from my house payment? Can I deduct it
> at the same rate as the 'habitable spaces' in
> house? Sure, I know that payment covers the
> yard, and the driveway, too, but I couldn't
> deduct those either, could I?
>
> -Snail
>
> ______________________________________________________________________________
> Send postings to clayart@lsv.ceramics.org
>
> You may look at the archives for the list or change your subscription
> settings from http://www.ceramics.org/clayart/
>
> Moderator of the list is Mel Jacobson who may be reached at
> melpots@pclink.com.
>
Snail Scott on tue 6 feb 01
At 09:46 PM 2/5/01 -0500, you wrote:
>
>The home office as discussed by the IRS refers to any business conducted
>from the home, used "regularly and exclusively" for the business. Your
>ceramics business does not have to be a separate room or rooms, but can be a
>section of a room, but it MUST be used regularly and exclusively.
>Bonnie
There are a few aspects of the 'home office'
deduction that I'd like to have confirmed,
if Bonnie or any other knowledgable person
would care to respond.
First: You can't take the deduction if any
household (non-business) activity takes
place in the space, or if you have to walk
thorough the space to get to a non-business
space. (i.e. you can't have a closet full of
garden tools in a corner of the studio. Since
you would have to walk through the studio to
get to the tools, the whole studio would be
disallowed.) I heard this from an accountant.
Second: If you pay a mortgage, you can only
deduct the percentage from the principal of
your payment. Since my mortgage is fairly new,
only about 10% of my mortgage payment goes to
principal, so I'd be deducting a small fraction
of an already small number.
Third: Does my garage-studio count? It wasn't
counted in the square footage of the house when
I bought it, so how can I deduct its square
footage from my house payment? Can I deduct it
at the same rate as the 'habitable spaces' in
house? Sure, I know that payment covers the
yard, and the driveway, too, but I couldn't
deduct those either, could I?
-Snail
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