I have a few questions for those of you who have home-based or small businesses?

Question

1. If I use my business accounts for business expenses and personal expenses, do I just itemize what I've used for my business and the end of the year?

2. If I go out to breakfast, lunch or dinner to discuss my business (i.e. business meeting) with my spouse, whom is also involved in my business, can I write that off?

3. Can I write-off part of my mortgage (the room that is dedicated as an office)?

4. If I have a gas business credit card and I use it to fill out my car for the week, but I only travel 30 miles or so for business meetings, do I only write-off that 30 miles or how does that work?

5. Do you REALLY get a lot of money back at the end of the year for having a business? I probably won't make $400 this year because I just started several months ago. How does that work?

Answer 1

1. The only expenses that you can write off at the end of the year are the business expenses (i.e. Meals, advertising, etc.). It doesn't matter where the money is coming from (business or personal account), it just depends on what you are usine the money for.

2. Yes, according to tax law, the meal just has to be for business. If you are taking a partner/employee to lunch or dinner it is considered business related. That is write-off-able.

3. Yes, when you file a Schedule C (tax form that goes along with your personal tax form 1040) line 30 asks for business expense use of home (or go to irs.gov and look for form 8829). This form (8829) will allow you to deduct a percent of your expenses to run your home (morgage, electrical, phone, etc.) equal to the amount of the home you use for business.
- Say you have a 5,000 sq. ft. home and your office is 350 sq. ft. and you store your stuff in a room that is 400 sq ft. That makes a total of 750 sq ft that you are using for your business. Divide 750 by the total of 5000 sq ft and you get 15%. That means you can deduct or count 15% of your home expenses as a write off.

4. Legally you can only write off the gas/mileage you use for business. The best way to keep track of what you use for business and personal is to have a notebook and pen in your car so you can write down your miles. Once again it doesn't matter where the money comes from it just depends on what you are using for business and what you are using for personal.

5. The thing with a small personal business is, you don't get money back at the end of the year, but you can decrease your gross income if your business is a loss.
-Example: You worked for Jonny's Pizza Parlor for the year and it was your only job. You made $27,000 gross income. You would put that on your 1040 when you did your taxes. Then say your business ended up costing you money instead of making money. You only got 2 clients to take pictures of in your Photography business. You made $1,200 but you bought a new camera and lighting that cost you $1,700. So your business had a loss of $500. You get to subtract that loss from your gross from the year making your new gross income $26,500. Here is how you might get money back. You paid Fed and State taxes on your gross of $27,000 but now because your business had a loss of $500 you only had to pay Fed/State taxes on $26,500. So if you look at a tax book and see that you had $1,345 taken out for Fed taxes on $27,000 but now your gross income is $26,500 and you only needed to pay $1,235 in Fed taxes you will get a return of $110.

Thanks,
Charlie
Let me know if you need more help.

Answer 2

1. Bad idea! Keep them separate. ALWAYS!

2. No. You might be able to deduct half the cost of meals for customers or potential customers but don't even think of writing off a meal with your spouse. It won't fly.

3. You already get a mortgage interest write-off if you itemize. If you take a home office deduction -- which you probably are entitled to -- you must keep track of the depreciation on the portion of your home used for business, even if you don't take a depreciation deduction. That will be re-captured when you sell your home -- the "dirty little secret" of the home office deduction.

4. You can either use the actual costs and apportion between business and personal use or take the flat mileage rate for business miles. You MUST keep accurate WRITTEN records of all business use.

5. No. This is a common misconception. If you don't pay anything in, you won't get a dime back but will have to pay. You can go for a few years without showing a profit but after 3 years or so the IRS will start to wonder if you're actually trying to make money with the business or are churing up a tax write-off from a hobby.