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Thread: Does anyone run their quilting as a business and deduct all their fabric?

  1. #1
    Super Member jcrow's Avatar
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    Does anyone run their quilting as a business and deduct all their fabric?

    My MIL is a tax consultant. She has me get my checking account statements at the end of the year and I go over them and mark everything that has to do with quilting. I can see by the store how far I traveled to buy fabric and can deduct the gas and mileage on my rig. I deduct a portion of my mortgage payment because my quilt room is in my home. I sell some of my quilts and have a business so this helps me out tremendously on taxes. I keep most of my quilts (and give lots of family) but by having a business, I can write off a lot of my gadgets and fabrics and notions.
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    Super Member Scissor Queen's Avatar
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    Quote Originally Posted by jcrow View Post
    My MIL is a tax consultant. She has me get my checking account statements at the end of the year and I go over them and mark everything that has to do with quilting. I can see by the store how far I traveled to buy fabric and can deduct the gas and mileage on my rig. I deduct a portion of my mortgage payment because my quilt room is in my home. I sell some of my quilts and have a business so this helps me out tremendously on taxes. I keep most of my quilts (and give lots of family) but by having a business, I can write off a lot of my gadgets and fabrics and notions.
    As a tax lady I don't think I'd do your taxes.

  3. #3
    Super Member AliKat's Avatar
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    When I checked with my accountant I found that I would have to show enough profit in a few years. since I also do a lot of charity quilting this wasn't going to fly for me.

    ali
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    Super Member Annaquilts's Avatar
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    So does your business always show a loss or an income?
    Anna Quilts

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    Super Member Krisb's Avatar
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    I agree with scissors queen. I wouldn't put my name as a preparer on that return, either.
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    Super Member Peckish's Avatar
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    Quote Originally Posted by Krisb View Post
    I agree with scissors queen. I wouldn't put my name as a preparer on that return, either.
    What does that mean? Is she doing it wrong? What should she be doing instead? I'm not running a business, but I have contemplated it, so any information you can give would be helpful.

  7. #7
    Super Member 0tis's Avatar
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    As a previous tax preparer - I would want some backup to the information as well as a separation from business/personal expenses.

  8. #8
    Super Member Scissor Queen's Avatar
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    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.

  9. #9
    Super Member ghostrider's Avatar
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    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!
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    Senior Member Hinterland's Avatar
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    As I understand it, when the IRS takes their share out of the money I get from quilting, I can deduct the costs involved in making that income. I can't deduct more than the income, so if I make $100, I can't claim it cost me $200 to make something and deduct it.

    I don't remember if my accountant deducts for the sewing room, but if he does I can guarantee that it is only used for quilting unless you walk on four feet and need the litter box - the room doesn't double as a bedroom or storage room, and apart from the litter box, everything in it relates to quilting.

    If I get audited, so be it, although it would be huge waste of time and taxpayer money. I have my receipts saved and I'll be glad to show them exactly what I spent. I'm not making much more than pin money, and even with the deductions I usually have to pay.

    Janet

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    Super Member SueSew's Avatar
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    Quote Originally Posted by Scissor Queen View Post
    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.
    So true. Not worth a few bucks to start an argument you can't win. Before you know it you're a sitting duck looking down the barrel of an IRS shotgun, and that is not a good place to be. A lot easier for them to pick on things like this than try to bring down Enron!
    SueSew
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  12. #12
    Super Member 0tis's Avatar
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    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.

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    Member catlinye_maker's Avatar
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    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.

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    Quote Originally Posted by catlinye_maker View Post
    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.
    Exactly. I DO have an in home business...not sewing or quilting. Our tax guy explained everything to me about hobby/business. I pour candles...have been since 2000. I have a separate workshop...do not sell out of it though. I do craft shows and I have a Christmas Open house here in my home. I also DO sell candles to people...but like I said...I don't have a store. Anyway...I do NOT use my workshop as a tax writeoff. As someone else said...our tax guy also told us that IS the biggest red flag to end up being audited. The only thing I do is income/expenses...there's a name for it but I can't remember it now...lol. I have actually kept ALL of my receipts since the day I sold my first candle. I do have a PA sales tax license so when buying supplies in state I don't have to pay 6% sales tax on them. But...as soon as I sell candles I have to report and pay the 6% sales tax that I have to charge the customer.

    I would be scared to death to try to declare stuff that isn't really legit.

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    Power Poster joyce888's Avatar
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    The only fabric I write off is for pillowcases for the Conker Cancer Org. and I've gotten a receipt from the organization.
    Joyce

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    Super Member sewbeadit's Avatar
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    There is so much to taking a business off of your taxes I would not touch it either. Red flags all over.
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    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.

  18. #18
    Senior Member pinkberrykay's Avatar
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    I had a Photography business and my accountant wrote off the square footage of the space my computer table took up and nothing else. I do outdoor photography so I never used my home.

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    Do you have a business license? Tax ID number? File quarterly tax reports? Insurance on your business? There are certain criteria needed to be a business and being able to have deductions. I'd be careful.

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    Quote Originally Posted by ghostrider View Post
    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.

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    As a tax preparer.....I WOULDN"T TOUCH YOUR TAX RETURN either....Hopefully, your MIL is a licensed tax preparer, and is willing to go to a tax audit with you! I just completed an audit for a mechanic, out of his house, grossed $28000, expenses of about 14000....After 2 years of "checking" his return, his garage, receipts, bank records (personal and business)and HIS TIME spent getting records and meetings together...The IRS got him for another $100, they disallowed some expenses!!! They are currently checking into the previous 3 years....REMEMBER a man named Al CAPONE.....#! Mafia guy...but they got him on tax evasion!

    EVERYONE is correct in this being a wide open field for the IRS and don't forget your STATE tax division! Not worth the savings!!!

  22. #22
    Super Member michelehuston's Avatar
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    Home based businesses are very touchy subjects and most definately correct that the irs red flags them. If you really ddon't sell them, you cant claim them, exept for charity. Just be sure you have all of your documentation because you never know.
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  23. #23
    Super Member cpcarolyn's Avatar
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    The IRS is looking at these hobbys as businesses. You need to show a profit 2 out of every 5 years, They look to see if there is a profit motive and are you conducting this as a business. If not it is declared a hobby and you can only take expenses up to income. In other words no losses. I hope that your tax prepayer is not depriteciating your home because if she is you will lose the personal home exemption on that portion when you sell it. All these things should have been explained to you. The attidue at the IRS is not a plesent one at this time. You are looking at an aduit in you future and it will not be good.

  24. #24
    Super Member Treasureit's Avatar
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    I have had a home base business for many years and I have deducted my office legitimately without any audits because I am honest about what expenses are actually for the business. If you share the space with some other activity then only a portion would be allowed.

    In the quilting example that started this topic...I think you could not write off all the fabric, supplies etc. because only some of them are made to sell. The ones donated, given to family, etc...could not qualify for any deduction...ie: if only 20% of your quilts are sold then you could only deduct 20% of your home studio, fabric, etc. I am not an accountant, so this is only my understanding of the tax laws.

  25. #25
    Super Member Nolee's Avatar
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    I don't have a business but I do make plenty of crocheted blankets and sewn charity quilts so I get a statement from the charity on the number of quilts I donate and you are allowed to set your own price for them. They are about 45x45 so I value that size at $25. If you do that all year long, you have a reasonable deduction for your work, at least now. Who knows what this nutty government will do if it continues!!! There is a possibility of all deductions for charity going away.
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