Tax Deductions Question ~

Business By kellertur Updated 17 Apr 2009 , 4:34am by sweet1122

kellertur Posted 8 Apr 2009 , 3:37am
post #1 of 31

I'm about to file (I do it quarterly) and have been saving receipts for ingredients, etc. but I'm confused regarding tax deductions. I've tried calling IRS, etc. but because EVERYONE is so concerned about stimulus checks, etc. I can't get through- I just get that recording. icon_sad.gif

Can anyone please explain exactly what you can deduct on your taxes (costs, etc.)? I'm not looking for financial advice or anything, just basic information I'm not getting from my state office / IRS.

Thank you.

30 replies
Margieluvstobake Posted 8 Apr 2009 , 6:32am
post #2 of 31

Are you a home baker, or do you have a seperate bakery?

luvsfreebies72 Posted 8 Apr 2009 , 12:48pm
post #3 of 31

I used to be a tax accountant ages ago...

first off - get a tax accountant

2nd - you can deduct the cost of any supplies, equipment, etc that was purchased and used to generate taxable income

that's the quick answer. there's gonna be a lot of variables depending on the type of business, etc. but that's the general rule of thumb

chelleb1974 Posted 8 Apr 2009 , 2:40pm
post #4 of 31

What luvsfreebies said. I'm an accountant, and that's the basic jist of it. If you have specific questions, feel free to PM me.

~Chelle

kellertur Posted 8 Apr 2009 , 4:56pm
post #5 of 31
Quote:
Originally Posted by Margieluvstobake

Are you a home baker, or do you have a seperate bakery?




I'm a licensed home baker, sorry I forgot to mention that... icon_redface.gif

Margieluvstobake Posted 9 Apr 2009 , 1:49am
post #6 of 31

Just in general.... you will have direct expenses, which you can deduct the full amount ie supplies, ingredients, advertising etc. Then you will have indirect expenses based on the percentage that your work space takes up in your home. Like depreciation, utilitites, homeowners insurance. It can be complicated, so you really need a good CPA to do your taxes. DON'T MESS WITH THE IRS!!!

luvsfreebies72 Posted 9 Apr 2009 , 2:44am
post #7 of 31
Quote:
Originally Posted by K2cakes

Quote:
Originally Posted by Margieluvstobake

Are you a home baker, or do you have a seperate bakery?



I'm a licensed home baker, sorry I forgot to mention that... icon_redface.gif


licensed, unlicensed... doesn't matter... any money spent to generate taxable income is going to be deductible. (with a few exceptions, there are always exceptions)

You don't need an actual CPA, a good bookkeeper/accountant/tax specialist will be able to do what you need. CPAs can do 2 things that a good bookkeeper or accountant can't and those 2 things are just not needed by the vast majority of small businesses. (Besides which taxes are not the specialty of CPAs and I corrected enough CPA-prepared returns to fully come to this understanding lol)

patticakesnc Posted 9 Apr 2009 , 2:55am
post #8 of 31

You can deduct all ingredients, bakeware, supplies for your home business as well as advertising costs, bank fees for a seperate business account, and a portion of your household bills for your home buisness. If your kitchen is 10% of the size of your home you can deduct 10% of your rent/mortgage, and power. Anything that directly is used for your business you can deduct. If you deliver cakes, you need to keep your mileage for your mileage deduction. If you use your home phone or a cell phone keep records of those bills for the portion of your business use.

This is the general items. There can be more. Make sure if you are lisc. that you deduct any costs that it may have cost your last year for that lisc. if applicable in your state.

indydebi Posted 9 Apr 2009 , 2:57am
post #9 of 31

With depreciations, and the home office rules, etc., I strongly agree with getting a cpa or an accountant to do your taxes. If you don't know one personally, or don't know anyone who can give you a good referral to a good one, go to Dave Ramsey's website and click his ELP .... Endorsed Local Provider. (Right side of the screen, under "Trusted Services"). That's how I found my tax guy. You can't go wrong with one of Dave's guys! thumbs_up.gif

lisa78332 Posted 9 Apr 2009 , 3:00am
post #10 of 31

I too have prepared or rather, amended tax returns prepared by CPA's that were done incorrectly. I work for H&R Block as a tax preparer. You can deduct any expenses that are associated with your business on a schedule C. You can download the form on the irs website. If you operate out of your home, you can only claim a portion of your utilities. As a side note, as a tax preparer for H&R Block, I have to renew my certification annually and I have to keep up with all the current tax laws. If you have any questions PM me.

Justbeck101 Posted 9 Apr 2009 , 3:03am
post #11 of 31

You say you file quarterly? Isnt that for sales tax?

I thought sales tax was only if you sold goods like.....cake supplies...ie: a cake pan.

I thought you did your income taxes at the end of the year and then that is when you deduct all of your stuff?

Please tell me if I am wrong! lol I may be in deep doo doo....

chelleb1974 Posted 9 Apr 2009 , 3:11am
post #12 of 31

Self-employed individuals, which the OP is, pay their taxes quarterly to avoid underpayment fees when they file in April. One way of figuring out how much to pay is to take your net income for the quarter and pay a percentage of that. There are other, more involved ways, but that is the way most poeple do it I believe. I work for a CPA firm, and that's basically the way we do it too, along with taking other factors into concern.

~Chelle

Justbeck101 Posted 9 Apr 2009 , 3:24am
post #13 of 31

Oh, okay, just makin sure....I don't want to mess with those people! hehehe

kellertur Posted 9 Apr 2009 , 3:30am
post #14 of 31

OMG, I want to scream! (not because of any of you...)

I haven't charged any sales tax (per the IRS and state) because in Maine my prepared cakes, etc. aren't taxable unless selling by the slice, etc. I've double checked this... but I'm checking again. I've really kept things as simple and organized as possible to avoid miscalculating and getting in trouble. I'm making more money in the second quarter, almost twice as the first... ( I didn't make much last quarter. )

I have kept all my receipts for most supplies (not all ingredients because in the beginning we were doing groceries together). I've been so afraid to "cheat the gov't and go to jail" that I think I'm shorting myself somewhere. I haven't counted utilities, mortgage, etc... only receipts from the craft store, online, chef coat, etc... it's added up possibly more than what I've earned this quarter. icon_eek.gif

I'm going to TRY and get through to IRS tomorrow again. I really wanted this to be filed a week ahead. icon_cry.gif I don't want to do this wrong.

lisa78332 Posted 9 Apr 2009 , 5:29am
post #15 of 31

Why don't you call a professional tax preparer so they can help you out. Don't call a mom and pop one. Relax, if you have more expenses than income it won't be a problem. It just comes out as a loss. Again, go to the irs website, surf it and do some homework. It will save you a headache. Gather your receipts, expenses, etc. Also, if your mortgage is on your base home, then that goes on a Schedule A. Its seperate from the schedule C you use for your business. And if you use your car for your business, make sure to have written documentation to claim the mileage and to depreciate. And you also have to determine how much of that car you use for the business and for personal use.

luvsfreebies72 Posted 9 Apr 2009 , 6:00am
post #16 of 31
Quote:
Originally Posted by K2cakes

OMG, I want to scream! (not because of any of you...)

I haven't charged any sales tax (per the IRS and state) because in Maine my prepared cakes, etc. aren't taxable unless selling by the slice, etc. I've double checked this... but I'm checking again. I've really kept things as simple and organized as possible to avoid miscalculating and getting in trouble. I'm making more money in the second quarter, almost twice as the first... ( I didn't make much last quarter. )

I have kept all my receipts for most supplies (not all ingredients because in the beginning we were doing groceries together). I've been so afraid to "cheat the gov't and go to jail" that I think I'm shorting myself somewhere. I haven't counted utilities, mortgage, etc... only receipts from the craft store, online, chef coat, etc... it's added up possibly more than what I've earned this quarter. icon_eek.gif

I'm going to TRY and get through to IRS tomorrow again. I really wanted this to be filed a week ahead. icon_cry.gif I don't want to do this wrong.


It's not uncommon for a new small business to spend more in expenses than earn in income for at LEAST the 1st year (usually longer) so do not freak out about that. take all legitimate expenses, it's not breaking the law, it's not cheating the gov't. The tax laws are written that way on purpose - otherwise there would be NO small business in this country. If you are running your business out of your home you are perfectly entitled to claim a portion of the indirect expenses, so please do. do not shortchange yourself. Your tax advisor will be the best person to help you with all this.

Honestly, I would not bother with calling the IRS. There was a study done years ago about IRS employees that answer the help lines and according to the study the employee got the answer wrong approx 1/2 the time.

get a tax accountant, a bookkeeper that does taxes or an accountant that does taxes. please. like tomorrow.

ETA: preferably one that specializes in small businesses

Justbeck101 Posted 9 Apr 2009 , 12:15pm
post #17 of 31

You can to on turbotax.com and go through the whole process without having to pay. Then at the end you can see where if you want to file you have to pay. But it gives you the chance to see if you are doing them correctly. I have done this for 4 years, every year I am correct, but we have paid for a tax preparer because my husband was not sure if I was correct!!!
Next year I am doing them!!lol

loriemoms Posted 10 Apr 2009 , 12:59pm
post #18 of 31

Get an accountant. It is way to confusing to do yourself (in our state, we have to pay property tax on everything...so be careful what you claim as part of the business!!) My accountant has a lady in the office who will sit down with you and go over how to manage your quickbooks and invoicing and cost of goods sold and owners draws and all those kinds of things, so at the end of the year, I just bring my file to my accountant. It is very important you also have a seperate bank account, as it makes it much easier and the IRS will like you better!

chelleb1974 Posted 10 Apr 2009 , 2:25pm
post #19 of 31

If you go to taxactonline.com you can file your Federal return for free, and pay a nominal fee to file your state return. My mother has used it for a few years (well, I've done it for her because she gets nervous, lol) and it is very thorough. I believe there is even a help feature if you're not sure what something is talking about.

kellertur Posted 10 Apr 2009 , 5:51pm
post #20 of 31
Quote:
Originally Posted by loriemoms

Get an accountant. It is way to confusing to do yourself (in our state, we have to pay property tax on everything...so be careful what you claim as part of the business!!) My accountant has a lady in the office who will sit down with you and go over how to manage your quickbooks and invoicing and cost of goods sold and owners draws and all those kinds of things, so at the end of the year, I just bring my file to my accountant. It is very important you also have a seperate bank account, as it makes it much easier and the IRS will like you better!




First, I must agree: We do INDEED need more cowbell in our day to day lives. thumbs_up.gif

I'm going to be opening a busn. bank account this week (DH mentioned long ago, but since money was going right back out for ingredients, I didn't think it was time... well it is!) If you hire an accoutant and they make major mistakes, who does the IRS go after?

I'm feeling better this morning. The IRS laughed for TWO whole minutes when I expressed my fears of making a mistake on my return. icon_redface.gificon_biggrin.gificon_confused.gif I'm talking, full-on snorting laughter... it was kind of hilarious and lightened my mood.

kellertur Posted 10 Apr 2009 , 5:54pm
post #21 of 31
Quote:
Originally Posted by chelleb1974

If you go to taxactonline.com you can file your Federal return for free, and pay a nominal fee to file your state return. My mother has used it for a few years (well, I've done it for her because she gets nervous, lol) and it is very thorough. I believe there is even a help feature if you're not sure what something is talking about.




Is something to do yearly or quarterly? I'm trying to keep my business completely separate from our reg. lives/income.

thanks for all your suggestions. icon_smile.gif

chelleb1974 Posted 10 Apr 2009 , 6:04pm
post #22 of 31
Quote:
Originally Posted by K2cakes

Quote:
Originally Posted by chelleb1974

If you go to taxactonline.com you can file your Federal return for free, and pay a nominal fee to file your state return. My mother has used it for a few years (well, I've done it for her because she gets nervous, lol) and it is very thorough. I believe there is even a help feature if you're not sure what something is talking about.



Is something to do yearly or quarterly? I'm trying to keep my business completely separate from our reg. lives/income.

thanks for all your suggestions. icon_smile.gif




It's to file your tax return yearly.

As for the IRS laughing, I'm sure they don't get too many calls from people worried about filling out their return wrong. icon_biggrin.gif

Cakepro Posted 14 Apr 2009 , 7:02am
post #23 of 31

Hello!

I sure hope someone can help me! icon_smile.gif

This year I made quite a bit of money teaching cake classes (I taught, on average, 10 classes a week) and have saved every receipt for every purchase made relating to teaching cake classes.

Using TurboTax Basic, I quickly ran through our taxes without any deductions and at this point I owe the IRS nearly $3000.

Needless to say, I would like to claim some deductions and I have some questions.

As a Michael's employee, I have a W-2. Do I need TurboTax Home & Business or TurboTax Deluxe in order to file? Obviously, I don't have a clue what I am doing and need to find every deduction possible, which is what TurboTax is good at doing (supposedly). PLEASE advise!!

What deductions are available? Can I claim travel expenses, such as mileage?

What about all of the traveling I did to take professional classes in other cities and all of the Days of Sharing I attended in various cities around the state?

I am kicking myself in the rear for waiting until the last minute and now it's too late to hire a tax professional, so I'm on my own. I know I could just file my return as-is and then file an amended return later for a refund of what I overpaid without itemizing deductions, but amending a return ups the chances of an audit and I really don't want to deal with that.

I would sincerely appreciate any and all help, tips, tricks, suggestions, and advice anyone can give me. I know I am asking a lot!

Thanks so much!

Loucinda Posted 14 Apr 2009 , 12:00pm
post #24 of 31

Sherri - I did the Turbo Tax business one and it literally walks you through step by step - it even tells you how to check to see if that particular deduction is allowed. I know there are a lot of folks who say to use an accountant, but I am not that big yet. You also do not pay for it until the very end when you are ready to file, so if you are not comfortable with how it works, you can just not file it with them.

chelleb1974 Posted 14 Apr 2009 , 1:25pm
post #25 of 31

Since you receive a W-2 from Michael's, your business expenses are considered Unreimbursed Employee Business Expenses and are reported on a Form 2106. Everything you listed, with the exception of the miles driven to work, are deductible. And to clarify - filing an amended return does not increase your chances of getting audited, that's a myth. Returns are selected for audit based on random factors that no one really knows or has control over.

If you have any specific questions, please feel free to PM me.

~Chelle

P.S. Accountant by day, cake decorator by night icon_biggrin.gif

taxlady1 Posted 14 Apr 2009 , 5:27pm
post #26 of 31

I agree with everyone who told you to get professional advice--I wouldn't advise anyone to do there on taxes anymore than I would advise a bride to just get a video and a wilton kit and make your own wedding cake.

As far as the use of your kitchen the IRS is pretty plane about the fact to claim the deduction the space must be regularly and exclusively used for business..so if you cook your family meals in the same kitchen it is not exclusive.

Cakepro Posted 14 Apr 2009 , 8:12pm
post #27 of 31

Thanks....I guess I am just confused as how to (or even if I need to) itemize deductions for these stupid cake classes at Michael's, since I am considered a regular employee and not an independent contractor, separately from my cake business. Thanks for the info about Form 2106. In years past, I never even bothered itemizing deductions for my cake classes because I only made several thousand dollars in income and didn't want to be bothered with it...but this year it matters! icon_smile.gif

I think I really do need to invest in professional tax preparation services. I am just cheap! LOL

kellertur Posted 14 Apr 2009 , 10:37pm
post #28 of 31

Well, after much confusion and frustration... I finally spoke to my FIL, who's a laywer/judge and has done our reg. taxes in the past before losing his eyesight. I figured he knows law, he can help, although he had no idea about the LLC, so I looked that up.

I filed my state form a few nights ago online, and I now have all the info I need. I'll be hiring his accountant for our business taxes ASAP for next quarter, etc.

Thanks everyone. icon_smile.gif (there should be a "relieved" emoticon) icon_wink.gif

lazlo Posted 16 Apr 2009 , 7:55pm
post #29 of 31

Okay So I am reading all thats is said based on being licensed, but what if I am not licensed? Can I still deduct all my expenses? In the state of Tx it is illegal to sell out of your home.. So what then?

kellertur Posted 17 Apr 2009 , 1:09am
post #30 of 31

I'm sorry, I can't answer that, but I'm giving you a bump because someone on this site can.

Good luck.

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