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Tax advantages for the semi-pro shop

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Forum topic by IowaWoodcrafter posted 12-30-2007 03:16 AM 1051 views 1 time favorited 6 replies Add to Favorites Watch
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IowaWoodcrafter

280 posts in 2743 days


12-30-2007 03:16 AM

Now that I’ve been doing woodworking for a year and have sold several pieces I’m considering going through the process of becomeing a “legitimate” business. I know for the state of Iowa I have to get a Doing Business As certificate. I will also likely go through the process of becoming an LLC.

My question is, what are the tax advantages for those that sell what they are making? What if you also use the machines for hobby use for gifts? Can the gifts be considered “promotional” items as they help get my stuff out into the public? Any insights would be helpful. I’m hoping to use some of the cost of the machinery and the space in my garage as tax deductions.

-- Owen Johnson - aka IowaWoodcrafter


6 replies so far

View Karson's profile

Karson

34878 posts in 3067 days


#1 posted 12-30-2007 04:15 AM

Well you can write-off your material costs. But since you are not paying yourself wages, then when you give a gift of something you made, you are writing off the material costs, but you don’t have any other costs.

I was leery of writing off my home as a deduction because you have to capture that when you sell your house. But yes you can write-off depreciation for your tools. I’ve also used section 789 I think where I write off the total cost of my tools in the first year instead of depreciating it over XX years.

-- I've been blessed with a father who liked to tinker in wood, and a wife who lets me tinker in wood. Southern Delaware karson_morrison@bigfoot.com †

View MsDebbieP's profile

MsDebbieP

18615 posts in 2827 days


#2 posted 12-30-2007 02:33 PM

be careful about claiming house taxes but from what I know the claiming of hydro etc is ok.
Here, to claim a room as an office, it has to be dedicated solely to the business and not be used for other purposes.
Re: gifts – add a business card and you’re “in business”.
Don’t forget travel expenses to deliver the promotional items, picking up the wood in the first place etc.

-- ~ Debbie, Canada (https://www.facebook.com/DebbiePribeleENJOConsultant)

View motthunter's profile

motthunter

2141 posts in 2466 days


#3 posted 01-03-2008 05:14 AM

This is a good question for a good accountant. A good one will offer you a low cost consultation and help you make all the correct decisions. I know that you can take advantage of tax savings, but you need ot ask a professional from your state.

-- making sawdust....

View Karson's profile

Karson

34878 posts in 3067 days


#4 posted 01-03-2008 05:31 AM

I believe that now you can write off around $100,000 of capital investment each year instead of having to depreciate it over many years. Again check with your accountant on that. When I made and sold computers I could write off 10,000 per year. Which took care of my own personal computers. Of course software was an expense item.

As would saw blades, sandpaper, finishes etc.

-- I've been blessed with a father who liked to tinker in wood, and a wife who lets me tinker in wood. Southern Delaware karson_morrison@bigfoot.com †

View TreeBones's profile

TreeBones

1823 posts in 2690 days


#5 posted 01-05-2008 01:55 AM

I have been using Turbo Tax Home and Business and doing my own taxes for over 15 years. It will walk you through a lot of the information about what you can wright off and answer many questions. I like to write off all my tool expenses the first year too. I no longer use an accountant but some professorial advice is good to start off with.

-- Ron, Twain Harte, Ca. Portable on site Sawmill Service http://westcoastlands.net/Sawmill.html http://westcoastlands.net/SawBucks2/phpBB3 http://www.portablesawmill.info

View schroeder's profile

schroeder

669 posts in 2792 days


#6 posted 03-19-2008 02:19 AM

I went “professional” 3 years ago and the first thing I did was hit up a tax consultant. In a nutshell – If you aren’t trying in earnest to make a living at it, the IRS will call you a hobby-shop in an audit and you will be screwed. I still have a full time job, some of the specs my tax guy told me were;
- written business plan
- business license (shows intent)
- minimum 30 hours per week working for your business
- daily record/journal of what you did in the shop
- you can’t show a loss year after year

I know others push this, but according to those “in the know” in Oregon, you’ll probably lose an audit. BTW – The consultant gave me a laundry list of examples on the west coast that got audited and lost.
My advise is make your first stop your tax consultant, or if you don’t have one, most won’t charge for the first visit – my two cents!

-- The Gnarly Wood Shoppe

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