Does anyone run their quilting as a business and deduct all their fabric?
#11
Super Member
Join Date: Jan 2011
Location: Nawth o' Boston
Posts: 1,879
One of the biggest red flags for the IRS is the business deduction of a "home office." The regulation says "regularly and *exclusively*" for business use. Any personal use and it's not deductible for business use. And that's just one of the reasons I wouldn't do that tax return.
#12
With the IRS - the burden of proof is on the taxpayer - so you must be able to document all business expenses - otherwise they might not be allowed then penalties and interest can be added - its really a sticky situation when its a home business - now if you have a brick and mortar store then its so much easier to document and claim all your income and expenses - just keep the personal stuff separate.
#13
Just to add to what everyone else has said: the IRS considers that to qualify as a business you have to make a profit two years out of five. If that's not the case, then it's classified as a hobby, and not deductable.
#14
Senior Member
Join Date: Jul 2011
Location: Dillsburg, PA
Posts: 314
I would be scared to death to try to declare stuff that isn't really legit.
#17
Senior Member
Join Date: Aug 2010
Location: NC
Posts: 431
Really interesting topic. I've given some thought to the business end of quilting and I'm thinking I really need to rethink it. Doesn't sound like a good idea unless you're quilting as a business, ie. longarming.
#20
Senior Member
Join Date: Dec 2010
Posts: 446
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!
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!
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.
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