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I was wondering if someone could give me some clue into something. If you sell your cards as a business, collect sales tax and all that other good stuff that goes along with it......Is it ok to approximate how much inventory you use? for example; When I first started making cards for sale, I wouldfigure out how much I had into supplies,(paper ,adhesive, embellies...), It averaged out to about $2 per card. Is it ok for me to calculate my inventory use by how many cards I sold this year X say $2?
So if I sold 100 cards, multiply by $2/card that would be $200 worth of inventory used. Make sense? Is that an acceptable way to do this?
Thanks for any advise on this.
SO not a tax attorney or an accountant. But from my understanding no that is not the way it is done. You should be keeping receipts of your actual expenses and go from there. If you write checks or use your credit card they can help assist you in keeping track of your actual expenses. If you were to go through an audit guestimating would not cut the mustard. I would also seek the tax rules in your state.
I have all of my receipts and know exactly how much I paid for supplies, tools. The thing is that if I bought a pack of paper for $5 I can't claim the entire $5 unless I used the entire pack of paper.
I believe you can only claim the expense of the amount of supply actually used. Of cours I can claim all of my tools....good thing, because I bought quite a few this past year.
I have all of my receipts and know exactly how much I paid for supplies, tools. The thing is that if I bought a pack of paper for $5 I can't claim the entire $5 unless I used the entire pack of paper.
I believe you can only claim the expense of the amount of supply actually used. Of cours I can claim all of my tools....good thing, because I bought quite a few this past year.
Tools aren't written off all at once, though. You'd need to amortize them over their usable lifetime.
Definitely speak with an accountant. It's really not worth the stress of an audit.
I had a friend who sold things at craft fairs. She thought she could take the heat, electric for her crafting room ( in their basement) and a portion of her telephone bill as a tax write off. 2 years after she started the business IRS came a callin' ( un-announced). They found she had a TV and coffee pot there and a corner was used to store her kids out of season toys. They disallowed most of the square footage as a tax write off. She had to pay back most of the original write off amount and a penalty.
She had to amortize all the equipment over the life expectancy that the IRS claims
Another thing is you have to make a profit in either 2 or 3 years ( I forgot- just check with IRS) Too many people start a business to buy stuff wholesale for themselves and then write them off their taxes .
She did make a profit, but decided to close the business after about 5 years. She couldn't just keep the equipment or supplies , she had to sell it or buy it from her business at fair market value and then pay taxes on the proceeds. Business purchases are initially sales tax free , but when there is no business they want their sales tax money
Another thing she told me is IRS can and does visit craft shows and gets the names & tax ID's of every vendor then they start investigating if they are paying taxes on their sales . if you don't have a tax ID it is your social security number.
IRS is no one to mess with
Last edited by Barbara Jay; 03-23-2010 at 06:35 PM..
I had a friend who sold things at craft fairs. She thought she could take the heat, electric for her crafting room ( in their basement) and a portion of her telephone bill as a tax write off. 2 years after she started the business IRS came a callin' ( un-announced). They found she had a TV and coffee pot there and a corner was used to store her kids out of season toys. They disallowed most of the square footage as a tax write off. She had to pay back most of the original write off amount and a penalty.
She had to amortize all the equipment over the life expectancy that the IRS claims
Another thing is you have to make a profit in either 2 or 3 years ( I forgot- just check with IRS) Too many people start a business to buy stuff wholesale for themselves and then write them off their taxes .
She did make a profit, but decided to close the business after about 5 years. She couldn't just keep the equipment or supplies , she had to sell it or buy it from her business at fair market value and then pay taxes on the proceeds. Business purchases are initially sales tax free , but when there is no business they want their sales tax money
Another thing she told me is IRS can and does visit craft shows and gets the names & tax ID's of every vendor then they start investigating if they are paying taxes on their sales . if you don't have a tax ID it is your social security number.
IRS is no one to mess with
The first thing I did when I started this was get my DBA and my tax id. I know this may sound strange, but I was very happy when I paid my first quarterly taxes. As far as utilities and such.....We measured the space in the study where my work area is. Even though I use the other part of the stud as well for my business, (computer area), we didn't claim it because my husband uses it as well. I've yet to go to a craft fair because most of my business is word of mouth and I haven't been able to build stock for a show yet. The good of that is that I have regular customers, the bad is that I don't have enough time to build stock for a show......But that's ok for now.
Thanks everyone for the information...you've given me things to think about.
Just a note on claiming work space in your taxes. I had a photography studio in our garage that we custom built to be our studio. After we built it out account said not to claim any space within the home on our taxes. The reason being that when we moved or closed the business we would have to pay a % based on the size of the area back.
We have since closed the photography business so we weren't hit with any additional fees for we didn't claim a % of our home.
It is also important to remember that sales taxes and state write-offs vary, so an accountant is a great investment. I do know that, in my state, you can't get a tool sales-tax free - only things that you intend as resale.
There are very specific exemptions for your home office deductions, too. When I was a consultant for another DS company, I was able to write off a tiny amount, but had to be respective to the amount of square footage in the home.
__________________ Diana
*******
Save your drama for your llama.
You can claim selling cards as a "hobby" versus a business. I did this one year for our taxes. I would suggest talking to a tax professional, as you need to fill out a separate form.
I've run a successful business for years and use an acct. at tax time. You are so right in that state tax inspectors are always on the look out for those not collecting sales tax or wose, collecting it and not sending it to them. As far as the question of inventory, it should not be thought of as that. It is considered necessary supplies and yes, if you buy 1000 reams of paper in one year and 2000 stamps (thus inventory as you want to call it) but only sold 100 cards at $5.00 a piece, you could conceivably show a loss on your taxes for all the supplies you have already purchased. Expenses against profit is the factor; inventory it is never considered.
We were audited on our 2006 taxes. I am happy to report that it was not in the least bit a negative experience. The audior was awesome. We took all of our records with us and he said we did a great job. We came out great. The auditor loved our organization. I was able to pull out everything he asked for and it was in perfect order. I would save everything. I also write off an entire room of 12 x 12 for tax purposes and it was not an issue, including the electric, gas etc.
blessings.
You must talk and work with an accountant, that is their job to know all of the rules for the state in which you file in, but he also needs for you to do your part too, and he will tell you what he will need for him to do the best job for you.
We just had the audit last July. Anyway, I worked for an accountant for 7 years prior to coming to Vegas so I knew most of the red flags...that accountant still does my taxes.
blessings.
Just a note on claiming work space in your taxes. I had a photography studio in our garage that we custom built to be our studio. After we built it out account said not to claim any space within the home on our taxes. The reason being that when we moved or closed the business we would have to pay a % based on the size of the area back.
We have since closed the photography business so we weren't hit with any additional fees for we didn't claim a % of our home.
I shared this info with DH and we've agreed this is a good thing to do....not claim the spce. Thanks for this tip.
Last year H&R Block told me that I could take the expenses from a hobby business off of my taxes if we would decide to go long form. I told him that I don't keep track of how many cards I sell, but he said I would have to sell quite a few before it would matter. I would definitely check to see what your state laws are regarding hobby businesses.
question about card making and taxes
