Business "loss" Purchases

Business By Kitagrl Updated 4 Oct 2008 , 2:57am by Sweet_Guys

Kitagrl Posted 2 Oct 2008 , 4:24pm
post #1 of 28

Okay I have a licensed home business in PA. Not a seperate kitchen.

I have bought two fridges and one freezer that of course counted off on my taxes for this year because they are for cakes (I already have a family fridge).

My question though is, I am eyeing a double oven range to expand my baking abilities (less time, more baking). However I was told by a friend that I cannot count it as a business expense if I use it for my own use. Is this true?

$2000 is alot of money for an oven, and I'm not sure if I should do it unless I can count it as business loss...but I don't have room for a second oven "For just cakes". I mean MOST of my baking would be done for my business, but then I have to cook for my family too, which would also be done there.

So I can't count it, or can I?

27 replies
MacsMom Posted 2 Oct 2008 , 4:37pm
post #2 of 28

I don't know, but who is going to rat on you for baking a lasagna? icon_razz.gif

CA is so strict that I can't even operate from home.

jennabell441 Posted 2 Oct 2008 , 4:38pm
post #3 of 28

Normally you have to worry about depreciation for a business especially when it comes to electronics and appliances. I think you can count the oven as a "partial" business expense. For example if you use the oven 60% of the time for home use you could count 40% as a business expense. I would recommend talking to a tax professional to answer any questions that pertain to strictly to your business, how you are going to file, etc.

HTH
Jen

ccr03 Posted 2 Oct 2008 , 4:40pm
post #4 of 28

I think you would have to check with your state.

One one hand, I think you would be able to because if your state doesn't require a separate kitchen then it in fact in allowing you to use the same equipment for business and personal use.

And the fact that you really will be using it for the majority of business, I don' t see where it would be a problem.

Just my thinking.....

Kitagrl Posted 2 Oct 2008 , 4:42pm
post #5 of 28

Yeah we are probably going to have to have someone do our taxes....this year is my first "licensed" year so I haven't filed quarterly, and my profit isn't super high with all the insurance and fees and costs and expenses...but...next year I have ads going up and I feel it will be a higher profit year. I want to get the oven so I can take more wedding orders but if I can't count it as loss, I might have to put it off a little more time.

Great answers so far....good point about the home kitchen, they'd have to assume some of that is business loss....

giraffe11 Posted 2 Oct 2008 , 4:47pm
post #6 of 28

Please talk to someone (ie: accountant or other tax professional) who knows the laws in Pennsylvania. My parents have run a business out of their house in NJ for many years and my Dad is an accountant and they still didn't follow the rules exactly to the IRS satisfaction (although they thought they were) and got audited!! icon_cry.gif The business survived, but it was very stressful and a litle bit scary!
I think many states do have laws about using "business" equipment for home "non-business" use. I know when I was thinking of starting up a business (not cakes) I was advised that if I was going to claim equipment as a business "loss" I would need to log use of the equipment for every time I used it, business or otherwise, then figure out the percentage of total times I used it for business, compared to home use and subtract only that % of the cost as a business loss.
I can't imagine having to log every casserole or roast chicken I cooked for my family for the next however many years........ ugh!
Please talk to someone who knows......not just us (or your friends) on CC.
Heather

jennabell441 Posted 2 Oct 2008 , 4:50pm
post #7 of 28

I bake cakes out of my home as well but I MOSTLY do it for family and friends. Occasionally I make cakes for clients but I'm just filing this year as a hobby. I do have an accounting degree but taxes aren't my forte' by far. I just remember in my classes there are some really funky rules. I think you also can use your home as an expense if you are doing this for real. Same rule applies for cakes. What percentage of time do you use your kitchen for your business vs. personal, same goes for vehicle for deliveries and such.

Jen

jennabell441 Posted 2 Oct 2008 , 4:53pm
post #8 of 28

Heather is completely right. Sometimes taxes can be quick and easy but if it isn't done right, it can be quite scary.
Jen

alvarezmom Posted 2 Oct 2008 , 4:54pm
post #9 of 28

I would have to say talk to an Accountant one that is reputable and has many years experience. I talked to two one year for other matters. They both told me two diffrent things. I finally found one that was reccomended by a friend and I felt very comfortable with her.

sweetcakes Posted 2 Oct 2008 , 5:17pm
post #10 of 28

this year we got the turbo tax small business edition. it walks you through all this kind of stuff and has links that takes you to where you can find answers. it might help.

Kitagrl Posted 2 Oct 2008 , 5:24pm
post #11 of 28

We usually do Turbo Tax but I don't think my husband will be comfortable doing ours PLUS our business.

I have an acquaintence/friend who is an accountant and her husband is also the accountant for a large well known corporation, so I think I'll call her up. Maybe she'll trade services for cake LOL.

Mothersuperior Posted 2 Oct 2008 , 5:46pm
post #12 of 28

I agree with most, you should speak with an accountant. My sister has worked out of the house the past few years and per her accountant, she is allowed a portion of the electrical, phone, heating to go towards the business, but I do believe it varies by state.

Birdiepants Posted 2 Oct 2008 , 5:50pm
post #13 of 28

Jennabell you are absolutely right. Although I am not a CPA, I do have my bachelors degree in accounting and you can write off part of that as a business expense as well as part of your gas bill. Just be careful with the % that you are trying to write off.

tblide Posted 2 Oct 2008 , 6:54pm
post #14 of 28

For my "real" job, I am a tax preparer. I have been preparing taxes at a major tax preperation firm for the last 9 years. Yes you can take the expense of your new oven. It is like someone else said it will be a percentage. So for example that you use it 75% of the time for business and 25% of the time for personal, you can take the 75% of the expense. The way to avoid the issue of an audit is to cross all your t's and dot all your i's. If you are audited, you have to be prepared for it. This means keeping up very good records and keeping all of your receipts. This is for 10 years after your file. IRS can and will go back that far. They are known for looking at all of your records if they find something that they think is suspicious. They will start with one year and continue from there. Bottom line KEEP EVERYTHING!!! ASK FOR ADVICE IF IN DOUBT!!! If you buy something that you think can be used for business, keep the receipt and ask your tax preparer. The major tax preparation firms and also CPA's are open year round for this purpose. Consult someone local if in doubt. Hope that helps.

KoryAK Posted 2 Oct 2008 , 7:10pm
post #15 of 28

If we are talking Federal taxes, what do differing state laws have to do with it?

Mike1394 Posted 2 Oct 2008 , 10:34pm
post #16 of 28

Are you, or the business paying for the oven? If you are paying for it, remember you are loaning the $$$ to the biz to buy thier %. Of course that ;loan is at the highest % you can get away with. You want your biz to lose as much money it can the first five yrs.

Mike

Kitagrl Posted 2 Oct 2008 , 10:41pm
post #17 of 28
Quote:
Originally Posted by Mike1394

Are you, or the business paying for the oven? If you are paying for it, remember you are loaning the $$$ to the biz to buy thier %. Of course that ;loan is at the highest % you can get away with. You want your biz to lose as much money it can the first five yrs.

Mike




Right, I know, that's why I wanted the business to pay for it....I don't want to pull a profit yet and have to pay a huge chunk of it to the government when I'm really not making that much anyway. Anything I can do...buying equipment, paying for advertising, etc, to keep my profit down while I gain more business is very cool.

Not sure I understand the loan thing though...you are saying I loan myself money and pay interest on it?

Mike1394 Posted 2 Oct 2008 , 10:45pm
post #18 of 28
Quote:
Originally Posted by Kitagrl

Quote:
Originally Posted by Mike1394

Are you, or the business paying for the oven? If you are paying for it, remember you are loaning the $$$ to the biz to buy thier %. Of course that ;loan is at the highest % you can get away with. You want your biz to lose as much money it can the first five yrs.

Mike



Right, I know, that's why I wanted the business to pay for it....I don't want to pull a profit yet and have to pay a huge chunk of it to the government when I'm really not making that much anyway. Anything I can do...buying equipment, paying for advertising, etc, to keep my profit down while I gain more business is very cool.

Not sure I understand the loan thing though...you are saying I loan myself money and pay interest on it?




Your not loaning yourself money. Kitagrl's family is loaning, biz X the money for it

Mike

springlakecake Posted 2 Oct 2008 , 11:07pm
post #19 of 28

just on a side note...I got a brand new double oven (for the business I am forming) for $500 on ebay. I think it was probably a $2000 oven. I got a super deal, and you can save hundreds of dollars by being a little patient and doing some hunting! I have saved thousands so far on all of my equipment.

Kitagrl Posted 2 Oct 2008 , 11:30pm
post #20 of 28
Quote:
Originally Posted by merissa

just on a side note...I got a brand new double oven (for the business I am forming) for $500 on ebay. I think it was probably a $2000 oven. I got a super deal, and you can save hundreds of dollars by being a little patient and doing some hunting! I have saved thousands so far on all of my equipment.




Hmmmm thanks for the tip!

snarkybaker Posted 3 Oct 2008 , 12:06am
post #21 of 28
Quote:
Originally Posted by Kitagrl

We usually do Turbo Tax but I don't think my husband will be comfortable doing ours PLUS our business.

I have an acquaintence/friend who is an accountant and her husband is also the accountant for a large well known corporation, so I think I'll call her up. Maybe she'll trade services for cake LOL.




Turbo Tax will work fine for your home based business. Pennsylvania law is irrelevant because taxes/income/capital purchase etc are all subject to FEDERAL tax code.

Turbo Tax will guide you through it pretty easily. You will need to determine what percentage of the oven is used for professional use and that is the amount that is subject to capital depriciation . If you ick a reasonable amount, say 40% it is less likely to flag an audit since the IRS LOVES to audit small businesses.

Kitagrl Posted 3 Oct 2008 , 12:32am
post #22 of 28
Quote:
Originally Posted by txkat

Quote:
Originally Posted by Kitagrl

We usually do Turbo Tax but I don't think my husband will be comfortable doing ours PLUS our business.

I have an acquaintence/friend who is an accountant and her husband is also the accountant for a large well known corporation, so I think I'll call her up. Maybe she'll trade services for cake LOL.



Turbo Tax will work fine for your home based business. Pennsylvania law is irrelevant because taxes/income/capital purchase etc are all subject to FEDERAL tax code.

Turbo Tax will guide you through it pretty easily. You will need to determine what percentage of the oven is used for professional use and that is the amount that is subject to capital depriciation . If you ick a reasonable amount, say 40% it is less likely to flag an audit since the IRS LOVES to audit small businesses.




Is it easy to file joint home/business with Turbo Tax?

I really think the oven would be used at least 50% if not more, because I bake for my business much more than I cook...but I don't want to raise red flags either. Well I haven't bought it yet either. LOL.

snarkybaker Posted 3 Oct 2008 , 2:37am
post #23 of 28

It's very easy. My husband has a home-based business that has a lot of capital expenditures ( hundreds of thousands every year) and we still use Turbo Tax.

If it were me, I would do a " dry run" with Turbo Tax, and if you are finding it confusing, then hire a tax professional.

If you do decide to declare more than 50% use of your home's ONLY oven as a business expense, then be absolutely sure to keep a log of oven use to prove your case.

Kitagrl Posted 3 Oct 2008 , 2:39am
post #24 of 28

Thanks, we'll probably do that.

Except next year I'll probably have to start filing quarterly. Do I need to hire someone for that?

KoryAK Posted 3 Oct 2008 , 8:25pm
post #25 of 28

I've never heard of filing quarterly. Paying estimated taxes quarterly you mean? Turbo tax will help you estimate that and print out the 4 coupons for you and you just send em in at the right time. At the end of the following year, you just list that as what you already paid towards what's due and that's it. No additional help needed icon_smile.gif

Kitagrl Posted 3 Oct 2008 , 8:37pm
post #26 of 28
Quote:
Originally Posted by KoryAK

I've never heard of filing quarterly. Paying estimated taxes quarterly you mean? Turbo tax will help you estimate that and print out the 4 coupons for you and you just send em in at the right time. At the end of the following year, you just list that as what you already paid towards what's due and that's it. No additional help needed icon_smile.gif




Oh cool! Which Turbo Tax is this? home and small business?

KoryAK Posted 3 Oct 2008 , 10:49pm
post #27 of 28

yep

Sweet_Guys Posted 4 Oct 2008 , 2:57am
post #28 of 28

Check with your state regarding the state income tax form. However, you can find questions for the federal income tax form at www.irs.gov. Also, you can utilize the 1-800 # to ask additional questions. If they can't provide you clear-cut information, ask them to have someone research it for an opinion. After you get an email of the opinion, KEEP IT!!!

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