Small woodworking business tax question - Page 2 - Woodworking Talk - Woodworkers Forum
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post #21 of 28 Old 01-28-2016, 02:27 AM
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Originally Posted by Tony B
Keep in mind that if you are declaring one room in your home as an office and take the appropriate deductions, it MUST look like an office and used as NOTHING else. That means even a small TV set or a kids toy can disqualify you. Another thing to consider with a home business is say for instance you declare 1 room as an office which is 20% of your total home square footage, if you sell your home and make a profit on the home, 20% of that profit must be claimed as the business profit. It can get complicated. If you declare your garage as your shop, better not have any home stuff stored in it or even park your car in it. Just because you know other people getting away with it, dont mean you will.
That is a joke right? I guess you NEVER stop by the grocery store on the way home in your work truck either.
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post #22 of 28 Old 01-28-2016, 09:37 AM
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That is a joke right? I guess you NEVER stop by the grocery store on the way home in your work truck either.
Not a joke. This is the IRS rules. You want a home business, that's the rules. has nothing to do whether people follow them or not. The rules are there. Like someone said earlier, home business throw up a red flag to the IRS.
I have had several woodworking businesses, but none of them have ever been out of my home. I have always rented a commercial location. Several of my starts were in mini-storage buildings. And I always had a dedicated business vehicle. Usually start with an old van and paint it.

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post #23 of 28 Old 01-28-2016, 10:17 AM
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I'm a CPA with a Masters degree in tax. Note that I don't specialize in small business, but I will give some comments.

Some of the comments others have provided are good, but the best one is to get some professional help with the accounting and taxes.

If you plan on trying to say you have a one man woodworking business, you'll actually have to set things up to prove this is the case. It can be a sole proprietorship, in which case you just file a schedule C with your 1040. Note that you'll be paying Social security and Medicare on the earnings, but half is deductible as a business expense.

You'll need to set up a separate bank account, which is used for the business only. You'll need to set up a reasonable method of accounting for the business, and keep good records. You'll need to record your sales, none of that "cash isn't taxable income" nonsense that many contractors love to do.

You'll need to register your business with the state for sales tax. You'll have to charge sales tax on everything you sell, and file the returns and remit sales tax to the state. This is a big one that helps to prove you're actually running a business.

You can use part of your home, but if you deduct any of the expenses associated with that, you lose the federal exemption on that amount of the gain when you sell the house.

You can use a personal vehicle for the business, and then you can only deduct based on mileage used for business. You'll have to track mileage, and report the business use on another tax form. You will have to inform your insurance that your vehicle is sometimes used for business.

If you buy a vehicle just for the business, you can take deductions for the insurance, gas, repairs, and depreciation, but then you can only use it for business. The mileage option above is usually a better economic choice for most part time small businesses.

And don't expect to be able to continually take losses. That makes it look like a hobby, not a small business. Loss making "businesses" are big red flags.

Last edited by sanchez; 01-28-2016 at 10:25 AM.
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post #24 of 28 Old 01-28-2016, 08:47 PM
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Sanchez:

Thank you for clearing that up.

BTW, once set up, an accountant does not cost all that much to do you basic taxes if you dont want to do it yourself. Just get appropriate spreadsheets on Microsoft XLS and at the end of every month, fill in the boxes. Then at the end of the year, give it to your accountant either by printing or on your .xls.
My total tax bill from the accountant was around $150 for doing my taxes and I would also spend about 30 mins or so discussing future plans. Not a bad deal.

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post #25 of 28 Old 01-29-2016, 11:12 AM
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Even better than excel, just buy quicken for like $70. It's much better and as easy as maintaining a checkbook.
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post #26 of 28 Old 01-29-2016, 11:14 AM
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Sanchez:

Thank you for clearing that up.
You're welcome!
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post #27 of 28 Old 01-29-2016, 09:50 PM Thread Starter
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Thanks for all the advice, I think I'll either do nothing or have to talk to a cpa, sounds like a logical route
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post #28 of 28 Old 01-30-2016, 12:19 AM
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A few things to consider:
If you are doing this to get a hobby to pay for itself - Don't. It becomes a pain in the ass and you are working for free. Hobbies tend to lose the fun aspect when they become responsibilities and work without pay. I loved woodworking before it became a business, that fell down to 'liked it' when I did it for a business and when I sold my business, I fell in love with it again.

Also, if you do decide to do it for a living, do it right and jump in with both feet and make it a commitment. That would involve a new thread with riot police on here.

best of luck in whatever you decide

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