TAXES

[luv2kwilt]

Hi Ladies!

I have been quilting now for about 1 1/2 years now and am filling taxes for the first full year of business and I was wondering how you all go about write-offs (deductions) for thread, batting, and fabric, etc. If you buy something (say a cone of thread), but don't use all of it, do you deduct all of it, or just the part you used? Can you deduct the rest the next year or how does this work? Confused--Does anyone out there know for sure how this works?

Thanks!

Luv2Kwilt

APQS Millennium

[Merryjo2003]

The money I spend with my CPA is well worth the frustration of trying to figure it all out on my own. I highly recommend it! It truly lessens my headaches. He always knows the latest changes in the tax laws, too.

[quiltmonkey]

Agree. Good advice from Merry Jo.

I'd rather spend my valuable time quilting rather than pulling my hair out figuring out tax laws. And, I'd rather spend my money on a CPA (which by the way is also a business tax deduction). I will sleep better knowing it's all done correctly.

If I get audited a few years down the road by Mr. IRS and he discovers that I didn't file my taxes correctly and guess what...now I have to pay more in back taxes...well, that would not be very fun and I'd probably get a little cranky. Not a good thing!

[Stagecl]

I send mine to a CPA...it is to confusing with my husbands income...for us it is well worth paying an accountant.

Sorry, couldn't be much help...I do know he is depreciating my machines (millie, compuquilter and Libby) over the course of 2 years or more to help zero out my income.

Cheryl Mathre

Stone Creek Quilting

Sandy Hook, VA

[fabric007]

You should have a starting inventory at the beginning of the year and an ending inventory at the beginning of the next year...keep track of all purchases, maintanance fees, home utilities, shop supplies , postage, advertising fees, shipping costs, mileage, .....just keep track of everything that seems to be related to your business..then when you go to your tax person, they will let you know what is deductable etc.

[John Mitchell]

Tax advice should only come from a tax professional. A good CPA does not come cheap but the savings in time, accuracy and peace of mind is worth the money. If you have a business you should have a tax professional not just someone who fills out tax forms. Business taxes are unique to each business and not the same as personal taxes. Of course we pay a CPA for or personal taxes also.

Also you want to confer with your CPA before you start the tax year and they will give you solid advice about your business and taxes.

John

[juliagraves]

The IRS has a number of publications to help you do your own taxes. Go to http://www.irs.gov/businesses/small/index.html. While I agree that a good CPA will be invaluable, you still need to understand what's going on, because you may miss deductions otherwise, or your CPA could make an error and you are still liable.

Here are some useful Publications:

334, The Tax Guide for Small Business

583, Starting a Business and Keeping Records

535, Business Expenses

Each publication will reference other more detailed publications.

IRS also has an online classroom that explains things at: http://www.irs.gov/businesses/small/article/0,,id=97726,00.html

You can also get TurboTax Business ($90, but does your personal taxes as well) and it will step you through everything.

How you've set up your business (sole proprietor, LLC, corporation, etc) affects how you do your taxes.

In general, you will do a Schedule C. You show all your income, and then deduct your expenses. Thread, batting and fabric count as inventory, which you don't deduct until you use. This then becomes "cost of goods sold (CGS)".

If you have less than $1M in inventory (I hope so, or you have a serious fabric stash!?!), you don't have to track your inventory, but can estimate what you use for each quilt. You could have a reasonable thread charge for each quilt and track it. Superior Thread website has an estimate of how much thread it takes: http://superiorthreads.com/index.php?option=com_content&task=view&id=269&Itemid=100

What you don't use this year, but use next year, would be in next year's cost of goods sold.

You can deduct your longarm as depreciation - a portion of the cost each year. Machinery is generally a 7 year asset.

Good luck! I do my own taxes, but then I enjoy a challenge...

Julia Graves

[CQS]

You might think about a tax attorney rather than a CPA. I had an experience several years ago that made me feel much better with an attorney. The attorney saved me a lot money over what a CPA wanted to do.

Just a thought.

Vicki

[John Mitchell]

Good suggestion, it depends on what your CPA's specialty is.

John

[CucumberQuilting]

Here's my best advise for the professional quilter. Purchase the Machine Quilter's Business program from Eureka Documentation. It's been written specifically for what we do and it's very reasonably priced.

We have a top-notch professional tax accountant and he was very impressed with the information I provided for my quilting business generated from this program.

How and what you deduct depends entirely on your exact situation; current tax laws, other sources of income, married/single, jobs, other businesses, other sources of income, etc... and on and on and on. PLEASE save yourself a big headache, and spend a little bit of your hard earned cash on a reputable tax consultant for at least the first year or two. Then if you think you can handle it after that you'll have a good starting point.

[yvonnerenae]

I agree with cucumberquilting. Find out from a professional what category you fall into, is incorperating a good idea for you, accrual vs cash basis, depreciation vs write off, etc, after you get a feel for what's going on you can save a ton of money by using a good taxprep software. Having come from a retail store background and knowing what it cost per form, and per line in some cases to have a tax person prepare your papers - well lets just say a trip to the dentist was a lot more fun. But you gotta know what you're doing, keep good records and keep up on the tax laws.

[Georgene]

I'm almost afraid to venture into this, but in case it will help someone, I will venture forth.

We?ve been getting a CPA to do our taxes for the past several years. THIS IS NOT LEGAL ADVICE ? only what has worked for me ? and for our CPA -- to keep tax records for my health and nutrition business for the past 10 years.

I did not take inventory (I was advised to stay away from this ? too time consuming and meticulous). I counted what I spent that previous year. For instance, if I spent $100) on a case of products, it counted as $100 spent on supplies ? whether I used it all that year or not.)

I kept file folders titled by categories from the Schedule C tax form. As I bought something I would put the receipt in the correct folder (see list below) and at the end of the year, before our appt. with the CPA, I?d tally up each folder. Then all I had to do was give him the total and not have to carry each folder with me.

The folders were all titled BUSINESS EXPENSES with the following subtitles:

OUTGOING

Advertising (business cards, brochures, etc.)

Auto Expenses (I never really used this folder, but if you make deliveries for instance, you must keep a log of mileage ? I was never that disciplined)

Legal and Professional Services (CPA perhaps)

Office Expenses (computer, internet services, web site, software, paper, etc., I needed the Internet for my business)

Repairs and Maintenance (to your business equipment or home, if directly related to business)

Seminars and Training (maybe even some magazines for keeping up with trends)

Supplies (For a quilt business, I would guess this to be thread, batting, pantos, etc.)

Tax and Licenses (Business License renewal each year)

Telephone Expenses (I had a separate phone line for my business and a cell phone)

Travel, Meals, Entertainment (Had to have receipts for everything spent during a business trip ? gas, food, hotel, etc.)

Utilities -- If you know your average monthly household expenses (gas, electric) , a certain percentage (based on percentage of square footage of your home office or work place) might apply as a business expense.

INCOMING

Then I had a separate folder for receipts for items sold (income before deductions)

Again, this is only what worked for me over the past 10 years in my health and nutrition business.