New business--first year filing taxes and I'm kinda worried?

Question

How much of a write off do I get for my new business as a whole? For start up, we have spent about $8,000 for equipment, supplies, uniforms, etc. and so far we have made about $1,000. How does that work...will we owe? :/

By the way, we do use part of our home for holding equipment (if that helps).

Answer 1

It's a multi-faceted question but I will attempt an answer:

You will probably be filing a Schedule C, which is what Sole Proprietors use to report income and expenses.

Report the $1,000 as income. For the expenses, you'll have to distinguish between fixed (long-term) assets (equipment, furniture, software) and current expenses. The current expenses are deductible for this year. The fixed assets will need to be depreciated(gradually deducted over time). You can deduct the entire cost of fixed assets by claiming a Section 179 deduction. Alternatively you can depreciate the equipment over 5 years.

You will result in a loss for this activity, which will offset other income and will likely get you money back rather than costing you money. Just be sure that this business is legitimate and can't be perceived as a hobby. Be conservative with your deductions since Schedule C losses are somewhat of a red flag. Don't be scared to claim legitimate losses though: this is your only chance.

As for the use of the home, I would avoid it unless you are a renter and if you are confident that you will eventually turn a good profit. The deduction is based on sq footage used and the rent, utilities, maintenance, etc of the home. The deduction will carry forward until you have profit. It makes little sense if you own the property because you are already deducting the mortgage interest and property taxes.

Answer 2

A business will never survive if the owner does not have knowledge of what the income & expenses are on a regular basis.

If you are unable or do not wish to be bothered with the numbers, I suggest that you hire an accountant or at the very least a professional bookkeeper. Let them worry about cash flow and the profitability of the business while you spend your energies running the techincal side of your business.

Answer 3

You'd be wise to pay a CPA to do your first year return, and advise you on records you need to keep and what you can deduct. After that you might be able to use the first year return as a patterm and do the following years' returns yourself.