I'm STILL waiting for my packet from the VA agr. board (I'll call them tomorrow to see when the mailed it), but in the meantime, I'm wanting to get the ball rolling with the holidays just around the corner. I need some supplies - no matter what, but is it possible to count these supplies I'm getting now as a business expense even though I'm not officially a business yet? Or, are the tax breaks only AFTER the licensure?

I'll wait on getting some things, but I need cake boxes NOW and some dummy cakes, etc. Not a lot, but it all adds up, you know how it is - a dollar here, a dollar there.... before you know it, you've spent $50 on piddly stuff.

thanks again,
Melissa

The best person to answer that question would be a tax professional familiar with home/small business.

There is a difference between a business begins date, and the date you are approved by the health department (or whomever does the licensing) As long as you keep your receipts, and only use those materials for product you sell, YES it would be deductible.

Just start the 'business' on what ever date you decide-generally the first of a month. Your licensing date would not need to be the same.

agreed with joann. but seriously save your receipts!!! that is the best part about being self-employed! there are soooo many things you can write off. little known fact....if your state charges tax on say like the jeans you have to buy your son for school...then you can write off that tax as well! however if your write-offs aren't more than your state's automatic write off (differs from single and married) then its no use to save your receipts.

yes, as long as they are items for purchase for business use. Many businesses have to buy up a little at a time until they have the materials they need to open (prior to being officially in business). Just make sure to keep all of your receipts and you should actually make sure to make copies since many thermal printed receipts fade and are unlegiable. If the receipt does not easily identify the item be sure to mark the item name beside that line.

A lot of times we purchase things for my husbands construction business and it may say GUOE87ENG 18" and no one will know a year from now what that means so we make sure to put 18" Eastwing hammer (or whatever it may be) You should also seperate materials from supplies. (i.e. cake mixed, powder sugar (materials), tips, cake stands (supplies). This will help you keep your tax's straight since these things have to be seperated on your Schedule C. Also be sure to keep track of your mileage. If you go to the store to get materials or supplies mark it down. If you meet with a customer keep those miles and anything you may purchase. If you go to starbucks and purchase yourself and your prosepective customer coffee, that is deductable. I know it may not sound like much but it really does add up and at the end of the year it can make a huge difference.

The way that my tax preparer explained it to me is that you save all your receipts and at the end of the year, if you are responsible for paying taxes, then you can deduct your costs from the responsible amount. From reading tis and other threads here, I have to wonder if I was given the wrong info on this ? Let's say I make $100 for 2006, but I have $3000 in expenses. Can I fully apply to get my $3000 back or will I get my tax liability refunded to me up to $100??

I do not believe that you can get back more than your original tax liability.

Another tax-related question: could you deduct donated cakes from your taxes?

I am a tax preparer/accountant by day and a cake decorator by night. I have lots of info to post about this, but unfortunately am busy as work right now. I will post the info either tonight or tomorrow.

~Chelle

Thank you so much Chelle.
That is very kind of you to offer your info and time.

Thanks

czyadgrl - yes you can write off your donated cakes/vouchers/etc... i always advise my clients to get a receipt or letter acknowledging their donation however i know its not always possible. should you get audited you need to be able to defend the valued amount of the donated cake.

Sweet:

Yes if you have receipts that equal higher than your sales you can still apply them to your taxes. It will put you in a negative tax liability but if you are filing your business with a joint return with your spouse this will help to lessen the overall liability. It is very common for businesses to show in the red for the first year.

I have been doing taxes since 1989 and this as I said is very common. The first year of my previous business it was the same way. There was such a large start up cost it overroad the amount of income that I aquired that year. It helped in the end to have a negative bottom line as my husband made a great deal that year and so it lowered our Federal liability.

Yes you can deduct expenses that are more than the money you received from sales. It is called a net operating loss. Unless this is a hobby and not a legitimate business. In the case of a hobby you can only deduct expenses up to the amount of the receipts. There are detailed rules regarding net operating losses however, a great deal depends on your attitude. One of the IRS tests to determine whether a business is a hobby or not is whether it has a profit within a 7 year period.

On the donations you wouldn't end up with an additional deduction for the contribution. The rule is the amount of the dontion is the actual cost you have in the cake itself. Basically, if you include the cost of the donated cake in the general costs of goods sold then you've already gotten a deduction for it. Your time is not valued unless you are a corporation paid employee and when you get that far you really need to have professional tax advice.

Hope that helps!

You cannot deduct the VALUE of donated cakes, only the actual cost of supplies.