kimbrennan

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!!!

michelehuston

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.

cpcarolyn

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.

Treasureit

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.

Nolee

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.

Doreen

I have some friends that work in a IRS office. That is one of the biggest red flags. If that is what you are doing, be ready for an audit. If you don't show a profit, it can be classified as a hobby and therefore you lose your tax advantage.

jcrow

I give my accountant what I spent on fabric and gadgets that I use for making the quilts that I sell. I have a bedroom that is my sewing room only. I deduct only a portion for my taxes. But I do have a business and sells some of my quilts. I don't count the ones I give away or keep. I know my hair stylist keeps tabs on her mileage when she goes out of town to the big city and buys a few items for her job. I do the same. My MIL has over 300 clients and goes by the book. She is the one who suggested I write off the quilts and my time and the mileage and notions of the things I use to sell my quilts. It's not a lot of money, and yes, we owe for taxes every year, so I'm not making a killing or anything. If I get audited also, I have nothing to hide. My MIL started her business by doing taxes from her home for years before she opened an office and was never audited. I don't believe that having a home business would make the IRS suspicious. Too many people do that. So Janet, thanks for having my back.

jcrow

What about all the people who are self employed? Does this mean they are red flagged as well? I'm self employed. I don't claim thousands of dollars on my quilts. I claim the loss of what the quilt cost, including long arm quilting and driving to buy the fabric, and the notions I use to make the quilts...applique sheets, thread, needles, blades, etc. It's totally legal. My MIL wouldn't risk her license for me, believe me. I have shown a loss for 3 years and no one has knocked on my door. I never get the amount of money I actually spent (plus my time) for my quilts. I spend over $150 on fabric (front, batting, back, thread) and sell them for $200 to $250. I count my time. This isn't a big scam or anything. I do have a license and a business name. This is all legal. I just wondered if anyone else sold their quilts and claimed it on their taxes? I do claim my sewing room, a portion of it. But I also sell quite a few quilts since I sell them so cheaply. The gal at my LQS is selling her quilts and she told me to look at her's and figure out how much I should sell mine for. Well, her's aren't selling, so I decreased the price of mine and they are selling. There are hundreds of thousands of people who sell on ebay and other places like that and they write off their taxes and claim it as a home business. My MIL goes to classes every year to keep up on the newest tax laws, so she's savvy to all the laws. I think you all misunderstood me.

jcrow

I agree with you. That is exactly what I am doing. Thanks.

KimS

My hubby and I run a business out of our home so we get to deduct part of our home bills since one room in the house is dedicated to only the business. If we hadn't set up a legitimate business with a State and Federal Tax ID I would never try to write any of these expenses off our taxes. If you have a legitimate business then you have no worries. JMHO.