What Exactly Is Tax Write Off?

Business By Normita Updated 11 Feb 2011 , 11:06pm by jason_kraft

Normita Posted 9 Feb 2011 , 2:51am
post #1 of 25

I am starting up my legal cake business and am going to have a meeting with my tax guy, but wanted to know ahead of time what exactly qualified as a tax write off? My hubby was saying everything related to cake......supplies, and even a computer for the business...is he right?

I mean...if I go to a cake conference or take cake classes, does that qualify as a tax write off for the business? I guess, its like continuing ed...I need to get trained in all of the new cake techniques out there icon_biggrin.gif

24 replies
jason_kraft Posted 9 Feb 2011 , 3:38am
post #2 of 25

You should confirm with your tax guy, but cake conferences and classes should definitely be tax deductible, as are ingredients and supplies used for the business. A computer purchase would be deductible depending on the percentage of time it is used for business vs. personal use. If it is used for personal applications 75% of the time, you would only be able to deduct 25% of the cost.

For some large purchases you may have to deduct the cost of the item over time instead of all at once, this is called depreciation and your accountant can tell you what does and doesn't have to be depreciated.

Business meals are also deductible (typically at a 50% rate), so if your husband is your business partner and you go out to dinner with him, you can deduct half the cost of the meal as long as you have discussed the business.

Normita Posted 9 Feb 2011 , 3:58am
post #3 of 25
Quote:
Originally Posted by jasonkraft

You should confirm with your tax guy, but cake conferences and classes should definitely be tax deductible, as are ingredients and supplies used for the business. A computer purchase would be deductible depending on the percentage of time it is used for business vs. personal use. If it is used for personal applications 75% of the time, you would only be able to deduct 25% of the cost.

For some large purchases you may have to deduct the cost of the item over time instead of all at once, this is called depreciation and your accountant can tell you what does and doesn't have to be depreciated.

Business meals are also deductible (typically at a 50% rate), so if your husband is your business partner and you go out to dinner with him, you can deduct half the cost of the meal as long as you have discussed the business.




Thanks Jason for the info. I am going to contact my tax guy for more info.

indydebi Posted 9 Feb 2011 , 2:24pm
post #4 of 25

It concerns me that someone opening a business has no idea that supplies for the business are tax deductible. icon_confused.gif This is pretty basic info to know. You are being very smart by hiring a tax guy, tho, so thumbs up for that! thumbs_up.gif

i would recommend you contact your local SBDC and take some of their (free or low cost) business classes to get up to speed as a business owner on this kind of stuff. thumbs_up.gif The SBDC is a great organization and will pretty much bend over backwards to help folks get started.

SecretAgentCakeBaker Posted 9 Feb 2011 , 3:21pm
post #5 of 25

Mileage is deductible. Not the mileage for you to go to/from your home to/from your storefront, but the mileage for business activity. So going to meet a customers, going to stores to buy supplies, deliveries, going to conferences, etc.

Either keep a small notepad in your vehicle, or keep a small voice recorder in the vehicle, then when you get in your car to go to one of those locations for business, make a note of the date, time, where you are going, and the mileage. You can also go through your calendar and paperwork/receipts and use Mapquest to figure it all out, but sometimes you may forget something that way.

The voice recorder would also be deductible. Or you can use any other electronic device to keep track, which would then make that item be at least partially deductible (see jasonkraft's comments about personal use.)

Internet and phone service are also deductible for the business portion of use (unless you are using a dedicated line for the business.)

Uniforms are deductible, but not your regular clothing. So if you have a t-shirt made up with your business name, that would be deductible, but not the jeans you wear along with them. If you get a full chef's outfit, with the pants, then that whole thing is considered a uniform and would be deductible.

Save all of your receipts. Best thing to do is to scan them as a lot of receipts today are on the heat sensitive paper and they fade out pretty quickly. There are scanners you can get specifically for receipts, they're a bit pricey but they are much faster to use when you need to scan a bunch of receipts.

If you are working out of your home, do some research before you take any kind of deductions for home office. That can possibly have negative tax consequences when you go to sell your home. For some people, it is not the best thing to do, but you will need to figure that out.


As the others have said, go take a class and ask your tax guy. He should be able to give you a list.

LindaF144a Posted 9 Feb 2011 , 4:11pm
post #6 of 25
Quote:
Originally Posted by indydebi

It concerns me that someone opening a business has no idea that supplies for the business are tax deductible. icon_confused.gif This is pretty basic info to know. You are being very smart by hiring a tax guy, tho, so thumbs up for that! thumbs_up.gif

i would recommend you contact your local SBDC and take some of their (free or low cost) business classes to get up to speed as a business owner on this kind of stuff. thumbs_up.gif The SBDC is a great organization and will pretty much bend over backwards to help folks get started.




Ditto, ditto, ditto. Love your tax man, make him your best friend. I wouldn't even breathe business without writing it down and asking your tax man if it is deductible. MY DH had the same attitude you did, but I took 2 years of accounting in college so I know otherwise. It took a meeting with the tax man for him to believe what I had already been telling him.

And your "taxman" had better be a CPA. If not, go get one!

Actually anybody serious about owning a business should have both a lawyer and an accountant first. Pay the money and pick their brain, it is well worth it. And besides any really good lawyer or accountant will do the first visit for free, and take as long as you need to get all the information you need.

scp1127 Posted 9 Feb 2011 , 6:42pm
post #7 of 25

80% of new businesses fail in the first year and nobody thinks it will be them. EDUCATION!!! You need basic knowledge of taxes, accounting, employee tax, money and banking, and especially COGS!!! And if you don't know what that is, you are not ready. While you are icing cakes and dreaming, go to school, read books, and study until you know. Or I promise you, you have a great chance of being in that 80%.

By the way, my husband owns a good size business and his accountant made major mistakes on his accounting this year. Again, EDUCATION!!! He caught it and is now fixing it himself. You cannot solely rely on other people with no personal knowledge. Every one of his accountants over the years have made mistakes.

cheatize Posted 9 Feb 2011 , 7:56pm
post #8 of 25

Thanks for reminding me why I'm about to sign up for a fourth accounting class. Sure, I need it for the degree; but I also need it so I know what I'm doing and know how to oversee anyone who messes with my money. I don't like the accounting classes, but they are necessary.

jason_kraft Posted 9 Feb 2011 , 8:10pm
post #9 of 25

For a small business owner I would argue that in-depth accounting knowledge isn't as important, as long as you know basic concepts like how to set up a chart of accounts and how to read and understand a P&L report. QuickBooks does all the dirty work for you.

The most useful classes from the MBA I finished last year covered microeconomics, taxation policy, finance, and marketing; I rarely use my accounting knowledge.

GL79 Posted 9 Feb 2011 , 8:28pm
post #10 of 25

All is good advice, all I have to say is please make sure your tax guy is a CPA. I work for a CPA and I've seen a lot of mistakes on new clients we get who used regular bookkeepers and ended up paying more for us to fix those mistakes. I know it costs more but it's worth it.

scp1127 Posted 9 Feb 2011 , 8:29pm
post #11 of 25

jason, you may be right about the accounting because of our age difference. In the eighties, we were taught double entry accounting and it was a whole different skill set. I double majored in acconting and economics, and the economic knowledge is vital to making business changes in anticipation to market and government changes, but not everyone will go that far.

As far as a deep understanding of acounting, I will have to disagree. My husband is a physician and in the last five years, five different CPA's have made huge errors. We are finding that like all other employees or contractors, the work ethic is the pits. Our current CPA sent a document to the IRS for this past tax year, and instead of doing the work, she changed the date on the form from 2009. It is a big mess, and we pay her monthly to do this work. Our understanding of tax and accounting will save us multiple thousands that we don't owe.

indydebi Posted 9 Feb 2011 , 8:32pm
post #12 of 25
Quote:
Originally Posted by jasonkraft

For a small business owner I would argue that in-depth accounting knowledge isn't as important, as long as you know basic concepts like how to set up a chart of accounts and how to read and understand a P&L report. QuickBooks does all the dirty work for you.

The most useful classes from the MBA I finished last year covered microeconomics, taxation policy, finance, and marketing; I rarely use my accounting knowledge.


Jason, you are one of the many exceptions, but while you call this 'basic' info, I guarantee there are lots of people who have no idea what you just said.

here's my quickbooks example about hubby: He would post my incoming payments ... cash/checks, and credit cards. for some reason, the cash payments would be posted under Asset - Sales, but the credit card payments were being posted on the Liability side as a negative liability. This was TOTALLY screwing up my sales numbers as the credit card paymetns were not being recorded as sales. This was the one where I totally blew up and asked why didn't he question it? Two payments were coming in .... they represented sales .... but because they were two different kinds of tendering, they were being posted two different ways? he said "Because that's how quickbooks did it."

And that's when I screamed "AND YOU DIDN'T EVEN QUESTION IT?????" icon_mad.gif

when I worked in an insurance audit dept, it was required that auditors have an accounting background to do the audits, yet we had one lady who didn't even recognize that she was sent a P&L instead of an income statement and she did the audit from those numbers. Which is not even POSSIBLE because the info she actually needed isn't on the P&L. Oh. My. God.

This is one area where folks really need to recognize their strength or weakness and admit it one way or the other. If its a weakness, take the classes or hire it out.

jason_kraft Posted 9 Feb 2011 , 8:54pm
post #13 of 25

Accounting is definitely critical, my point was that I didn't see the same ROI pursuing more in-depth accounting classes (once you have the baseline competencies necessary to run a relatively simple small business) as I did in other areas.

Econ and marketing in particular have been especially valuable in terms of increasing profitability, directly driving bottom-line growth and top-line growth respectively. Accounting is more of a "keeping the lights on" type of function, and while you can get screwed if you or your CPA messes up the books, being the world's best accountant probably won't make your business more profitable than being just a good accountant.

LindaF144a Posted 9 Feb 2011 , 9:03pm
post #14 of 25
Quote:
Originally Posted by indydebi

Quote:
Originally Posted by jasonkraft

For a small business owner I would argue that in-depth accounting knowledge isn't as important, as long as you know basic concepts like how to set up a chart of accounts and how to read and understand a P&L report. QuickBooks does all the dirty work for you.

The most useful classes from the MBA I finished last year covered microeconomics, taxation policy, finance, and marketing; I rarely use my accounting knowledge.

Jason, you are one of the many exceptions, but while you call this 'basic' info, I guarantee there are lots of people who have no idea what you just said.

here's my quickbooks example about hubby: He would post my incoming payments ... cash/checks, and credit cards. for some reason, the cash payments would be posted under Asset - Sales, but the credit card payments were being posted on the Liability side as a negative liability. This was TOTALLY screwing up my sales numbers as the credit card paymetns were not being recorded as sales. This was the one where I totally blew up and asked why didn't he question it? Two payments were coming in .... they represented sales .... but because they were two different kinds of tendering, they were being posted two different ways? he said "Because that's how quickbooks did it."

And that's when I screamed "AND YOU DIDN'T EVEN QUESTION IT?????" icon_mad.gif

when I worked in an insurance audit dept, it was required that auditors have an accounting background to do the audits, yet we had one lady who didn't even recognize that she was sent a P&L instead of an income statement and she did the audit from those numbers. Which is not even POSSIBLE because the info she actually needed isn't on the P&L. Oh. My. God.

This is one area where folks really need to recognize their strength or weakness and admit it one way or the other. If its a weakness, take the classes or hire it out.




LOL! Obviously if the software says it's right, then it should be!!
(Insert snarky voice here).
I sure do hope Quick Books has changed that. We are in the process of setting this up. I'll be looking out for this!

tryingcake Posted 9 Feb 2011 , 9:44pm
post #15 of 25

Regardless of your own background, a second set of eyes is always great. I am an accountant in my day job - and I still have a fellow accountant look over my records before I finalize anything. I'm told I'm really good at what i do (my day job) but I'm far from perfect.

scp1127 Posted 9 Feb 2011 , 10:53pm
post #16 of 25

Jason, I pursued cost accounting instead of the more popular income tax. That knowledge has been extremely valuable over the years. I agree that those with knowledge in economics are better equipped to adjust to outside forces and more importantly, to know how to change their way of doing business before adverse conditions arise. My marketing was self-taught and I owned a small marketing company for years.

My issues are not with a person who opens in their house or in a commercial kitchen where the initial investment is less. But on this site, so many people start looking for rental space and ask how to start the ball rolling. Or they don't know how to bake. I think that book, E-Myth, is rather elementary, but so many CC members are not even a master at their trade, which is usually the first step to wanting to own your own business. This economy is very unforgiving, and if you don't know what you are doing, you will fail. And that usually starts in the form of keeping the lights on or making payroll instead of paying the IRS.

Normita Posted 10 Feb 2011 , 4:03am
post #17 of 25

Wow....I didnt get any notifications that I had any responses!

Like I mentioned in my post, I am going to meet with my tax guy and will get the full details. I am going to look into some business classes to get more fully aware of everything. I know that I come across as completely clueless...but I am really not....I just wanted some clarification on some things.

Thanks again for all the helpful info icon_smile.gif

tryingcake Posted 10 Feb 2011 , 4:07am
post #18 of 25
Quote:
Originally Posted by Normita

I know that I come across as completely clueless..




The fact that you are asking questions means you are far from clueless.

cheatize Posted 10 Feb 2011 , 4:13am
post #19 of 25

I found almost all of my courses helpful when I got my Associates in Business Management. Very few of them have been helpful for my Bachelors and I'm nearing the end of attaining that.

EpicureanMaiden Posted 10 Feb 2011 , 4:43pm
post #20 of 25

Great advice in here.
Also remember the term "write off" means different things. Some things you get credited for on your taxes, and others are deductions from your taxable income. Know what the difference is before you spend more than you should thinking its going to mean a big 'write off.'
Best of luck!

PistachioCranberry Posted 11 Feb 2011 , 10:12pm
post #21 of 25

Sorry for the hijack, but I had a question of similar nature. I am entering a cake show next month, and was wondering if I would have to take a class in order for this to be used on my taxes? I just wanted to make sure which account to use to pay for everything cake related.

jason_kraft Posted 11 Feb 2011 , 10:20pm
post #22 of 25
Quote:
Originally Posted by PistachioCranberry

Sorry for the hijack, but I had a question of similar nature. I am entering a cake show next month, and was wondering if I would have to take a class in order for this to be used on my taxes? I just wanted to make sure which account to use to pay for everything cake related.



Consult your tax professional for an authoritative answer, but when we go to shows to promote our business we charge all relevant costs (booth fees, the cost of making samples, signage, parking fees, etc.) to an Advertising account, which can be deducted to reduce taxable income. If you wanted to take a class that should also be deductible, but I don't believe a class would be required to deduct the show expenses as long as you are promoting your business in the show.

indydebi Posted 11 Feb 2011 , 10:27pm
post #23 of 25

i agree with jason .... i wrote mine off to advertising.

PistachioCranberry Posted 11 Feb 2011 , 10:51pm
post #24 of 25

Maybe I should have said a cake competition instead of cake show. I don't know if that makes a difference.

jason_kraft Posted 11 Feb 2011 , 11:06pm
post #25 of 25
Quote:
Originally Posted by PistachioCranberry

Maybe I should have said a cake competition instead of cake show. I don't know if that makes a difference.



It shouldn't make a difference IMO since the primary purpose of the competition is to showcase your product and expand your market...assuming you are entering the competition identified as your business instead of just as an individual.

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