The costs of running a business...

[threeputt]

What I'm about to say is in the interest of any 101 member reading this thread. And thinking of copying your home based business model.

I'm thinking there's a lot of "expenses" that would not allow me to sleep well at night.

I'm not an accountant. But I think the IRS and other taxing bodies might well make the argument that things like high speed internet, snow removal, upkeep of the property, etc. are things you would have even without the business being on site.

Remember, 50% of the property has to be for exclusive use of the business. That means you can't have so much as a baby crib (or whatever) in a room you're deducting as home office, (or whatever).

If you've been advised of all of this by a CPA then you've got that to fall back on. That part's good.

But if they're wrong they won't shoulder the tax implications, (you will) but they'll represent you in any audit that comes your way.

Good luck and prosper.

 

[WhiskeyDreamer]

Number one red flag for an IRS audit.
Number two in dividend income without payroll. SS/Medicare want their cut.

from checkers' original post (if you read the whole thing)....he said nothing about marking this on his taxes....his post was in regards to figuring out a shop rate...and that he does figure his mortgage into his HOURLY RATE

 

[Gino]

I know Checkers is here in PA where we’re located, but in addition to what he says and more in line with what threeputt mentioned is….

No amount of any kind of personal living habits may overlap your home based operation. In other words…..

• You must provide separate restroom facilities from which you or your family uses.
• You must provide a separate entrance for customers to enter your business, regardless if customers come to your house/business or not.
• No personal appliances may be in any of the 50% area you deem business… besides playpens…. washers, dryers, heating systems and other home use items are not permitted in the area… or within a customer’s view of any such items.
  [*]You must have ample parking, such as a small lot which is separated from your residential area. You may not have business parking in residential areas. That's a big No-No.
  [*]You must have proper fire extinguishers in appropriate places.
  

There are those that will try to stretch the rules... and get away with it, but like in your insurance and any other business investment… the rules are only as good as with what information you give your CPA or IRS. If they see it differently, guess who’s gonna pay the fine ??

 

[threeputt]

...he said nothing about marking this on his taxes....his post was in regards to figuring out a shop rate...and that he does figure his mortgage into his HOURLY RATE

Ok, ok, I get that. But he does make the comment that such and such are "business expenses". More than a few times, too.

Now, if he's figuring all the costs he has only for the reason of determining what to charge as an hourly rate, so be it.

But are you then suggesting that he doesn't deduct "business expenses" from his gross income? As you or I would?

...that it's just an abstract idea of trying to account for what would have been lawful deductions? That doesn't make any sense, kiddo.

 

[Bigdawg]

I think you are mistaken... when I had my business in TN at home I discussed the whole bathroom/heating thing then with my accountant.

He told me I can't claim any portion of the bathroom. But I can claim the area of my house used exclusively for business. I had one room that compromised appx. 28% of my house and that's what I claimed since I used it exclusively for business. As well as 28% of my heating bill... I could not claim any portion of the water since my one room did not provide running water. He also said it is a misconception that you have to provide restroom and heating seperately to claim a home business... there is nothing at the federal level (or wasn't 10 years ago) that says that... it only says you can only claim the relative portions of your home and bathrooms are not generally used only for business.

The fire extinguishers and any other applicable local laws do have to be followed.

 

[WhiskeyDreamer]

But are you then suggesting that he doesn't deduct "business expenses" from his gross income? As you or I would?

i've learned not to assume anything...i was simply trying to make a clarification....checkers took the time to make a really good post, and everyone jumped on him...assuming he was talking in regards to taxes....

 

[threeputt]

...assuming he was talking in regards to taxes....

Could you explain to me in what other context "business deductions" is relevant?

I also do happen to think it was a good post in so far as he attempted to make shop owners aware of the true costs of doing business. Enumerating many good points often overlooked in calculating overhead costs. Such as future retirement planning, etc. That part was good.

But as I stated, there are many newbies on this board that might also infer his business model is a sound one. And I don't think it is.

 

[signage]

Well, since it's that "tax" time of year again, I thought it would be good to share some of the cost/expenses of running a home based business that I have "budgeted" into my overhead and hourly rate.Checkers

I think if you all read this as Checkers meant, you would not be saying anything about Tax Deductions! He clearly states Overhead and hourly rate!

Yes he does use some points or words that some may take as Tax information but in the paragraph I pointed out he said since it is "tax" time I think he was referring to compiling of information!

 

[Stealth Ryder]

I know Checkers is here in PA where we’re located, but in addition to what he says and more in line with what threeputt mentioned is….

No amount of any kind of personal living habits may overlap your home based operation. In other words…..

• You must provide separate restroom facilities from which you or your family uses.
• You must provide a separate entrance for customers to enter your business, regardless if customers come to your house/business or not.
• No personal appliances may be in any of the 50% area you deem business… besides playpens…. washers, dryers, heating systems and other home use items are not permitted in the area… or within a customer’s view of any such items.
  [*]You must have ample parking, such as a small lot which is separated from your residential area. You may not have business parking in residential areas. That's a big No-No.
  [*]You must have proper fire extinguishers in appropriate places.
  

There are those that will try to stretch the rules... and get away with it, but like in your insurance and any other business investment… the rules are only as good as with what information you give your CPA or IRS. If they see it differently, guess who’s gonna pay the fine ??

Very Good Post...

 

[WhiskeyDreamer]

I think if you all read this as Checkers meant, you would not be saying anything about Tax Deductions! He clearly states Overhead and hourly rate!

Yes he does use some points or words that some may take as Tax information but in the paragraph I pointed out he said since it is "tax" time I think he was referring to compiling of information!

thank you!! someone else who actually knows how to read!

 

[threeputt]

And let’s not forget the "perks" of running the business. Some expenses that were once personal now can be written off as business expenses.
Checkers

Well Fenris, I guess I don't read too well.

But the above quoted statement is definetly referring to writing off business expenses. As in tax write-offs. How else can we poor readers understand that statement?

Say what you will, the OP makes quite a point of explaining just what his "business expenses" are. ...And in the above statement relates them to "tax write-offs".

 

[JimJenson]

Simple put. charge what the industry will bear. How long it takes, or how much you charge an hour are meaningless. Bottom line is spend less than you gross and you survive another year, spend more, and you are dead. Spend too much, and you are sunk even charging 100 an hour. OTOH, you can prosper at 35$ an hour if you don't spend anything...

And again, regardless of what the topic, a home based business writing off a percentage of your residence is the NUMBER one red flag for an IRS audit. Number 2 is corporate dividend income without payroll.

As usual, my words are strictly opinion, except for the red flag comments.

 

[threeputt]

Simple. charge what the industry will bear.

???

 

[JimJenson]

???

If it is customary to charge 100$ for magnets, don't sell them for 15$ because your overhead is low.

(and the reverse applies)

 

[Gino]

It has nothing to do with anyone's capability of reading, comprehending or interpreting the law..... it has everything to do with claiming 50% of your house for business deductions. Regardless of what.... or how you label them... you must still follow the laws in your municipality, state and federal government. They don't like 'Creative Business Techniques' whatsoever. Although Checkers is talking about ways to make sure you get paid for this or that... the bottom line is... these are business deductions.


There is no skirting around this kind of information. It is highly confrontational, but has only one result.

As far as the business paying for toilet paper or some of your heat... that's all fine, but your bathroom cannot be used by both family members and/or business customers or vendors. You must keep your business portion completely separate from any household dealings. If you have just the possibility of a customer using your family bathroom... you are immediately disqualified from a home base business. Now, if no transactions ever take place in your home and no one is at all possibly or remotely going to be on your property, such as a home-based internet service or something you never see the public... you're ijn good shape.

Okay, let's try this on for size..... if you have a separate entrance on the side of your building and once a customer is inside and needs to use the bathroom... as long as they don't come into any contact with your family you may deduct the 28%, 39% or up to 50% of your entire home's overhead to run things, but at no time can your furnace, washers, refrigerators, playpens or any other family items be visible at all by any business related transaction.

Should an IRS agent or codes person come in and see this, you'll be fined for misrepresenting yourself and your business. There are hefty amounts for this stuff and they ain't afraid to enforce them if a neighbor or pissed off customer sees this going on and wants to see your butt dangling.

Will insurance, codes people or friends say... oh, go ahead... who's gonna know ?? Sure !! However, that doesn't make it any more legal to do. It could vary from state to state, but it doesn't with the IRS, so I think it's pretty much the same across the whole country.

Like Stacy mentioned... things could've changed, but in a recent episode of this with a friend of mine in business... and she just happens to be a sign shop.... she got nailed big time.

She was slapped with fines and a certain amount of time to make her business legal. She converted a barn/garage into a shop with a parking lot and all the stuff in there to make things legal. However, no family cars could park in there and no home owned possessions could be stored in there. The IRS came back several times to make sure. Recently, like in the last few months, her husband died and they still came back and checked up on her.

Be safe and check thoroughly with your local codes and IRS reps and make sure what you can and can't do and don't go on the say~so of what someone heard or is doing just to get away with things. Be safe and responsible for yourself.

Just in case... this is not meant as a slam towards Checkers at all. What he has written is well thought out and hits on quite a few points in business. Just be sure you are entitled to some or all if any at all before you just go ahead and do it with taxes being right around the corner. ​

 

[wildside]

all other issues aside...in the state of kansas, once a home based business begins "writing off" any part of the mortgage, etc... you better never sell the house, all the "writing off" becomes income the instant the house sells, if over 10 years you wrote off $50,000, when it sells, you just had 50 grand of income......

as for everything else, check local listings......

 

[WhiskeyDreamer]

threeputt....stop reading/quoting only what benefits your own argument and look at the REASON behind checkers' post:

In another recent post, someone commented about having to charge so much per hour even though I'm a home based business. I thought it would be good to share some of the cost/expenses of running a home based business that I have "budgeted" into my overhead and hourly rate

with that in mind....

the business occupies nearly 50% of the house, the business must pick up nearly 50% of the mortgage, taxes and related expenses.

The business also pays for its fair share of utilities, electric, gas, water, sewer, trash, alarm monitoring,

the cost of maintenance and upkeep of the property

training and continuing education in the form of travel to meets, seminars and trade shows

it is only after all this that he states (as you quoted)

And let’s not forget the "perks" of running the business. Some expenses that were once personal now can be written off as business expenses

but that is where your quote ended...you neglected to include what followed that statement...to help you out, i'll quote it here

Don't take my advice though, I would strongly urge you to consult your CPA to see what you can or can not expense.

and he ends his informing post by going back to his original reason for posting....you know, figuring out your overhead costs by stating:

I would strongly recommend starting with your personal budget and grow from there because, if you don’t know your personal needs, how can you build your business to provide for them?

 

[threeputt]

Fenris, you have yourself a nice day.

 

[Mosh]

My taxes as a farmer look simple now compaired to all of this. I guess partly because we don't have a mortage or any other loan payments. I let my taxman take care of it and just write the check in the end. BTW child-support can not be decucted here in Nebraska, or I'd be in hog heavin.

 

[WhiskeyDreamer]

Fenris, you have yourself a nice day.

already have...nice day at work...came home and watching who framed roger rabbit? with the kiddies....very nice if i say so myself...hopefully yours as been just as pleasurable