Tax question

[Forrest]

An offhand comment I made in the general candle making forum got me thinking. I am an armature and have no firm plans to go into the candle business, but I’m keeping my options open. But I have already spent money trying to learn how to make a good candle and plan on spending more. I believe that if I started a small candle business those expenses would cause me to have a loss which would make them deductible. In addition I think I would have a deduction for the area in my house I used in my business. If this is true what is the minimum I would need to be able to do this?     

[TallTayl]

That is a question for your tax accountant.... 

[Forrest]

3 hours ago, TallTayl said:

That is a question for your tax accountant.... 

That is very good advice, but I didn’t get that far. Instead I read a couple of websites with information on this subject and several things on the IRS website, all of which told me the same thing. The thing that differentiates a business from a hobby is your ability to show that you are trying to make a profit. That is not to say that you have to make a profit, many business end up going out of business without making a profit. So to answer my own question I can’t just sell a few candles and call myself a business. So, I can stick with the hobby and if I decide to make it a business down the road that’s OK. Or I can go off and write a business plan and start moving toward profitability.

[birdcharm]

If you are thinking of starting your business this year, then start saving the receipts that are going to go toward making this happen.  Then, let's say in the fall, you start marketing and selling candles, by the time it's time to do your taxes, you will have your paperwork collected to be able to sort through to determine your inventory or other expenses.

 

In regard to part of your home used in your business, if it is used exclusively for your candles, such as a workshop, then that is a consideration with your taxes, but it needs to be devoted to your business only.

 

 

[TallTayl]

If you do intend to sell, get those business licenses, tax id’s and liability insurance planned for early. Then you will know how many candles you will need to sell to recover costs. 

[Forrest]

1 hour ago, TallTayl said:

If you do intend to sell, get those business licenses, tax id’s and liability insurance planned for early. Then you will know how many candles you will need to sell to recover costs. 

Thanks, I'll keep all that in mind and put it in my business plan if I decide to go in that direction. But first I have to make a candle I would want to buy, and thanks to all your help I just might get there.

[rhoops]

Anyone used Legalzoom to form your company?

[TallTayl]

6 minutes ago, rhoops said:

Anyone used Legalzoom to form your company?

Yes, more than once. The process is easy, but costs a bit for things you can do yourself often for free (like get an EIN).

[Candybee]

In Virginia you can sell up to a certain $ amount and call it a hobby and simply list it on your tax return under other income as hobby income. Once you exceed that amount you are considered a business and should have all your ducks in a row so to speak; tax ID, biz license, biz name registered, etc. Plus if you are making candles in your home you may need to go through county/town zoning commission also. 

 

You can get a lot of information through the Small Business Administration website at https://www.sba.gov/. Check for your local affilate office and contact them. They can help you with which offices, forms, etc. you need to do and register with to start your biz. For taxes and tax info go to your state dept. of taxation.

Edited March 29, 2018 by Candybee

[LitUp]

Just a heads up on the home office deduction as this is one I looked more into this year. So when you sell your home it's tax free up to a certain number, I think $250k. However if you claim that deduction as a depreciation of $10,000, you will be subject to tax on that amount when you sell.

[rhoops]

On 3/29/2018 at 11:13 AM, TallTayl said:

Yes, more than once. The process is easy, but costs a bit for things you can do yourself often for free (like get an EIN).

We are a registered llc with them but it seems as if I'm nickel and dimed to death over things.  I'm considering letting it lapse after this year and going it alone.  We've only been selling since October and there is no great consistent income as of yet, or not enough to pay ourselves and Legalzoom too.  Lots of fees that seem would be more applicable to larger or more profitable companies.  Thoughts? 

[Pam W]

If you're properly licensed with your state you can deduct from you tax returns the cost of Research & Development of your product but you should discuss this with an accountant to get the particulars.