Sam Tomich on sun 29 oct 06
Bonnie, or anyone else, "materials purchased" or materials used? I thought
I had to keep a running total of how much glaze supplies I have used in my
inventory, and I am not sure how to figure out how much I have used in the
glaze buckets. What if I sell very little this year and buy a lot of
supplies but intend this as a business. I am only just starting out, but
have a good amount of experience and have purchased a great deal but made
very little so far this time out. Will the IRS still consider me a business?
Thank you,
Sammy in Hawaii
On 10/27/2006 12:40 PM, "Bonnie Hellman" wrote:
> Janine,
>
> If this is the first year you are preparing a tax return for your ceramic
> business, just remember that artists are not required to maintain inventory
> for tax purposes.
>
> This means that you can currently deduct the costs of everything you make,
> work in progress and materials purchased to make your ceramics.
>
> Bonnie
> Bonnie Hellman, CPA in CO & PA
> Now accepting a few new ceramics clients
>
>
>
> As required by United States Treasury Regulations, you should be aware that
> this communication is not intended or written by the sender to be used, and
> it cannot be used, by any recipient for the purpose of avoiding penalties
> that may be imposed on the recipient under United States federal tax laws.
>
>
>
Janine Roubik on mon 30 oct 06
Hey Sam,
What my sis-in-law the CPA told me was to keep track of everything you buy (so I'm guessing that would be your mtls purchased since artists don't have to do an inventory like a retail store would) booth fees, membership dues, as well as rent/mortgage and utilities if your studio is in your house - you can deduct a portion based on square footage (or just guesstimate - I do a 1/4) Basically, anything business related. If, say, you got a new computer and use it for show apps, looking on clayart, glaze calcs, etc. you could deduct a portion of that. And so on and so forth. BUT you have to be registered as a business first (in WI it's called the business tax registration and it's through the dept. of revenue). I think the regulations would probably vary from state to state and maybe even county to county, so check out your states dept. of rev. site. And the first few years of a business you usually lose money, and are starting with little money, so they aren't really
going to bust your chops about too much - barring major errors. But after 7 years or so you hopefully should be making a profit, so after that time the "man" will pay a little more attention. But, again, it would vary depending on your state's laws. That's just my extremely vague understanding of the whole deal - perhaps Ms. Bonnie will be able to explain it more clearly...or I could ask my sister-in-law.
Oh, and it helps to befriend or be related to a CPA. Otherwise I wouldn't have known ANY of this.
Have a good one,
Janine - who is very jealous of you being in Hawaii because it's like, 35 freakin' degrees here already.
Sam Tomich wrote:
Bonnie, or anyone else, "materials purchased" or materials used? I thought
I had to keep a running total of how much glaze supplies I have used in my
inventory, and I am not sure how to figure out how much I have used in the
glaze buckets. What if I sell very little this year and buy a lot of
supplies but intend this as a business. I am only just starting out, but
have a good amount of experience and have purchased a great deal but made
very little so far this time out. Will the IRS still consider me a business?
Thank you,
Sammy in Hawaii
On 10/27/2006 12:40 PM, "Bonnie Hellman" wrote:
> Janine,
>
> If this is the first year you are preparing a tax return for your ceramic
> business, just remember that artists are not required to maintain inventory
> for tax purposes.
>
> This means that you can currently deduct the costs of everything you make,
> work in progress and materials purchased to make your ceramics.
>
> Bonnie
> Bonnie Hellman, CPA in CO & PA
> Now accepting a few new ceramics clients
>
>
>
> As required by United States Treasury Regulations, you should be aware that
> this communication is not intended or written by the sender to be used, and
> it cannot be used, by any recipient for the purpose of avoiding penalties
> that may be imposed on the recipient under United States federal tax laws.
>
>
>
______________________________________________________________________________
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.
Bonnie Hellman on mon 30 oct 06
Sammy,
As an artist you can deduct materials purchased. Artists do not need to keep
"inventory". Businesses that maintain inventory cannot deduct the cost of
raw materials, the cost of materials used in work in progress, or the cost
of materials used in unsold items for sale, until those items are sold.
Accurately keeping the records for a manufacturing business is really not a
lot of fun.
Because artists can deduct materials as they are purchased, we get a better
tax break than businesses that are required to maintain inventory.
As for whether you are a business or a hobby, there are a lot of guidelines,
but no definitive check lists. The general idea is to run your ceramics shop
like a business, and to make the kinds of decisions that businesses make, as
compared to running your ceramics shop like a hobby. (This subject has been
discussed on clayart in the past, and I believe you'll find a number of
emails in the archives.)
We all have hobbies or we've had them in the past. A hobby is where you do
not have a profit motive in mind when you make decisions. For my hobbies, if
I want to buy something and I can afford it, I buy it. For my business, I
have to decide if I can justify the purchase on an economic basis. Will I
make a better profit, more money, greater sales, etc., if I buy that item?
Do I believe there a valid business purpose for that purchase? If not, as a
smart businessperson, I should not buy it. As a hobbyist, I don't care.
When you, as an outsider, look at a business, you expect to see certain
actions and not to see other actions. The IRS looks especially hard at
occupations that appear to have "an element of pleasure" to see whether they
are run like a business. (I know the phrase "run like a business" is
nebulous, but it's not a bad standard if you look at the overall approach
that a taxpayer takes to the operation of an activity.)
Many people enjoy ceramics as a hobby, and find it enjoyable without ever
trying to turn a profit. So what have you done to distinguish your interest
and sales of ceramics from people who operate a ceramic shop as a hobby?
Are you trying to make a profit? Are you qualified to own this business? Are
you running this business in a professional manner? Have you consulted
business experts? If you are losing money, what are you doing to try to turn
a profit? These are some of the questions you'd want to ask yourself because
they're the things you'd be discussing if you were audited.
It is NOT strictly a question of being allowed so many years of losses,
contrary to popular opinion. Of course a new business, including ceramic
artists, make a lot of purchases when they start their businesses. But what
have you done to generate sales? Be sure you document all of your efforts.
It is always better to sell a lot but the efforts are as important for a
new business as the actual sales.
Anyway, these are general discussion points. When I sit down with new
ceramic artist clients, we discuss these things and more, and I would expect
your sister-in-law (the CPA) to do the same with you, Sammy. However, NOW is
the time to be having those discussions. Do NOT wait until tax season when
she is likely swamped with work. You will also need to learn how to organize
your information (income and expenses) so that she will not need to spend
unnecessary time in preparing your tax return.
Best,
Bonnie
Bonnie Hellman, CPA in CO & PA
As required by United States Treasury Regulations, you should be aware that
this communication is not intended or written by the sender to be used, and
it cannot be used, by any recipient for the purpose of avoiding penalties
that may be imposed on the recipient under United States federal tax laws.
----- Original Message -----
From: "Sam Tomich"
To:
Sent: Sunday, October 29, 2006 8:20 PM
Subject: Taxes- Was: Re: Stockpiles?
> Bonnie, or anyone else, "materials purchased" or materials used? I
> thought
> I had to keep a running total of how much glaze supplies I have used in my
> inventory, and I am not sure how to figure out how much I have used in the
> glaze buckets. What if I sell very little this year and buy a lot of
> supplies but intend this as a business. I am only just starting out, but
> have a good amount of experience and have purchased a great deal but made
> very little so far this time out. Will the IRS still consider me a
> business?
>
> Thank you,
>
> Sammy in Hawaii
>
> On 10/27/2006 12:40 PM, "Bonnie Hellman" wrote:
>
>> Janine,
>>
>> If this is the first year you are preparing a tax return for your ceramic
>> business, just remember that artists are not required to maintain
>> inventory
>> for tax purposes.
>>
>> This means that you can currently deduct the costs of everything you
>> make,
>> work in progress and materials purchased to make your ceramics.
>>
>> Bonnie
>> Bonnie Hellman, CPA in CO & PA
>> Now accepting a few new ceramics clients
>>
>>
>>
>> As required by United States Treasury Regulations, you should be aware
>> that
>> this communication is not intended or written by the sender to be used,
>> and
>> it cannot be used, by any recipient for the purpose of avoiding penalties
>> that may be imposed on the recipient under United States federal tax
>> laws.
>>
>>
>>
>
> ______________________________________________________________________________
> 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.
Randy O'Brien on tue 31 oct 06
Hi Bonnie,
Is this a change in tax law or have I been missing out all these years?
I've had several accountants and all have required me to keep track of
unsold inventory. Let's say I have $2000 in beginning inventory (money
spent on materials) for this year. Can I finally deduct all of this
from my taxes in addition to everything I spend on materials in 2006?
Can you give me a tax code or reference that I can refer my accountant to?
I've got a 3 year old daughter and another daughter on the way in
December. This would be a great year to finally deduct my stockpile of
yet to be sold materials.
Thanks,
Randy
http://www.dakotacom.net/~rdobrien
Bonnie Hellman wrote:
> As an artist you can deduct materials purchased. Artists do not need
> to keep
> "inventory". Businesses that maintain inventory cannot deduct the cost of
> raw materials, the cost of materials used in work in progress, or the
> cost
> of materials used in unsold items for sale, until those items are sold.
> Accurately keeping the records for a manufacturing business is really
> not a
> lot of fun.
>
> Because artists can deduct materials as they are purchased, we get a
> better
> tax break than businesses that are required to maintain inventory.
>
Dolita Dohrman on tue 31 oct 06
Bonnie, This will be the first time I file taxes. However, I bought all the
equipment over 2 years ago. Do I deduct the depreciated amount or may I
deduct the entire cost of the equipment?
Thank you for this information. While I did not leave attached all the
emails to which you have responded, I have printed them out.
Dolita
--
No virus found in this outgoing message.
Checked by AVG Free Edition.
Version: 7.1.408 / Virus Database: 268.13.13/500 - Release Date: 10/26/06
Bonnie Hellman on tue 31 oct 06
Hi Dolita,
The quick answer is that you can depreciate any assets used in your
business that were purchased before you started your business, using the
lower of cost or market value. You cannot write them off.
The complete answer is too long for an email, but I would be happy to talk
with you on the phone. If you want to privately email me your phone number,
I'd be happy to phone you.
My email address is: mou10ms at frontier.net
Bonnie
> ----- Original Message -----
> From: "Dolita Dohrman"
> To:
> Sent: Tuesday, October 31, 2006 12:55 PM
> Subject: Re: Taxes- Was: Re: Stockpiles?
>
>
>> Bonnie, This will be the first time I file taxes. However, I bought all
>> the
>> equipment over 2 years ago. Do I deduct the depreciated amount or may I
>> deduct the entire cost of the equipment?
>> Thank you for this information. While I did not leave attached all the
>> emails to which you have responded, I have printed them out.
>> Dolita
>>
>>
>>
>> --
>> No virus found in this outgoing message.
>> Checked by AVG Free Edition.
>> Version: 7.1.408 / Virus Database: 268.13.13/500 - Release Date: 10/26/06
>>
>> ______________________________________________________________________________
>> 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.
>
| |
|
