Home business n00b question

[WhiteKnight]

For a few years, I've done some video editing work at home, beyond my regular engineering job. It's never been more than a couple hundred dollars a year, admittedly under the table. Recently, however, I've started doing a bit more work at home and I'm wondering if I shouldn't start handling this a little more professionally. One thought that comes to mind is that I might be able to deduct some of my expenses associated with the video work, such as my home office (which is also for personal use), my PC, maybe even the new HDTV I'm planning to get both for personal use and to show my video editing work.

I'm a total business n00b and I have no idea how one would go about this. What's involved in officially starting a home business for tax purposes?

 

[Regs]

You can always farm out help from an accountant.

Home businesses count as your net income. No special taxes involved.

You may want to think about the use of excel and balance sheets. (examples of which you can google)

I would also recommend a few classes at a community college (200-400 dollars). Small Business Management is a good coarse to start with.

 

[gingerstewart55]

First, the IRS is very picky about home business deductions. Since you said your home office is also for personal use, it does NOT qualify for any deductions for your home business. Sorry. Probably the same for your PC and everything else.

One of the rules that you must follow to qualify for deducting any home business expenses is the office space, PC, and whatever else, has to be ONLY used in the home business.....100%. The moment you use any of that for personal use, even 0.00001%, it immediately becomes non-deductible.

The IRS website has quite a few publications that deal with home-based businesses and their deductions and how to qualify to get them. Take a while and browse over there......

But here's a link to Publication 587, Small Business Expenses and Deductions.... http://www.irs.gov/publications/p587/ar02.html#d0e327

 

[WhiteKnight]

I could have sworn that I've read about legitimate ways to partially deduct things like PCs and such, but I do agree that the home office space must be exclusively for business in order to qualify.

 

[IceBergSLiM]

Originally posted by: gingerstewart55
First, the IRS is very picky about home business deductions. Since you said your home office is also for personal use, it does NOT qualify for any deductions for your home business. Sorry. Probably the same for your PC and everything else.

One of the rules that you must follow to qualify for deducting any home business expenses is the office space, PC, and whatever else, has to be ONLY used in the home business.....100%. The moment you use any of that for personal use, even 0.00001%, it immediately becomes non-deductible.

The IRS website has quite a few publications that deal with home-based businesses and their deductions and how to qualify to get them. Take a while and browse over there......

But here's a link to Publication 587, Small Business Expenses and Deductions.... http://www.irs.gov/publications/p587/ar02.html#d0e327

alright calm down your gonna scare him. Your not mentioning the part where the IRS will never come knocking to inspect your PC or "home office" conditions. And as long as you have CPA preparing your taxes it isn't your problem anyways.

 

[DBL]

Originally posted by: gingerstewart55
First, the IRS is very picky about home business deductions. Since you said your home office is also for personal use, it does NOT qualify for any deductions for your home business. Sorry. Probably the same for your PC and everything else.

One of the rules that you must follow to qualify for deducting any home business expenses is the office space, PC, and whatever else, has to be ONLY used in the home business.....100%. The moment you use any of that for personal use, even 0.00001%, it immediately becomes non-deductible.

The IRS website has quite a few publications that deal with home-based businesses and their deductions and how to qualify to get them. Take a while and browse over there......

But here's a link to Publication 587, Small Business Expenses and Deductions.... http://www.irs.gov/publications/p587/ar02.html#d0e327

I don't think you could have possibly read your own link considering your advice is completely wrong. But I'll let someone more qualified set you straight.

 

[WhiteKnight]

^

 

[Paperdoc]

I'm more familiar with the legalisms in Canada, but I suspect the principles are similar. First comes formal legal and accounting structure. If you just run this business yourself, any income becomes your personal income to be declared (with documentation) on your own tax returns. I am not sure where on a personal return you could deduct any real costs of earning that income - there may not be a way.

If, instead, you legally create a small corporation that you own, then the corporation has the income and expenses, and must file its own tax return and pay taxes on the net income. If some of its profits are paid out to you, the owner, then that is an expense for the corporation, but an income for you.

The problem I've always had with "deducting the expenses" of the corporation is: when the corporation spent money for expenses, who got it? It is income for whomever was paid. So if your corporation wants to claim the cost of renting $1000 worth of office space and services from you, then you must have received $1000 as income that you have to declare. My guess is you pay taxes on increased (marginal) income at a higher rate than the small corporation does, and it is better NOT to claim the expenses at the coroprate level.

Someone else gave good advice: take an introductory course in business management and accounting, or read a lot from a library. In Dick Cheney's infamous words, you don't know what you don't know!