Originally Posted by
ghostrider
Yup, I'm standing with the rest of the accountants on this one. Wouldn't touch your taxes for all the fabric in Paducah. For starters, you can only deduct costs and expenses that are documentedly related to the business quilts (assuming that quilting is your business), not the personal ones, those you give away or keep. So, if you sell 5% of the quilts you make, you could possibly deduct 5% of the cost of that ruler you bought, not the whole thing. Same with all the other stuff you say you are getting a tax break on.
And the 'kept' quilts, to count as business quilts, must be available for purchase and promoted as such. They can't be sitting in a closet waiting for a buyer to just 'happen' to see them. The home office/studio deductions are very closely watched and can easily trigger an IRS audit. The regs on that deduction changed many years ago. Sounds like you need a new tax advisor to me...and fast, tax season is upon us!
I certainly agree with ghostrider. I wouldn't touch your return with a 10 foot pole or all the fabric in all of the quilt stores in the USA! Have you registered a legal business name? Do you have a Fed Tax ID # and a Sales Tax # for your state?
If you are selling a quilt for $200 and the fabric cost $100 - the cost of the fabric isn't deductible and you would pay tax on the profit which is the difference between the costs or materials you used and what you sold it for.
And especially if you are making most for family members or donating -- be sure to keep a separate log for what you actually sold. All expenses need to be pro-rated accordingly as well.