AboutStacy Brice Expertise My company, Assist University, trains people in every aspect of starting, and more importantly, sustaining, their businesses, while having a high quality life. Additionally, I am a professional business coach. I coach clients to get from where they are, to where they want to be, professionally. All of my clients are small business owners.
Question QUESTION: Hello, My spouse has run a home business for 4 years from one room in our home devoted solely to quilting using a long arm stitching machine. Basically a customer comes to her and chooses a stitch pattern to piece together a customer's quilt, this includes the top, fiber fill, and bottom material. All material items are supplied by the customer with the exception of thread, and needles used to fabricate the finished quilt. Please see her web site at alenesquilting.com and gammill.com for a better understanding of what I am talking about.
My question to you is should I be taking a tax deduction for the room used in performing this business? Right now I am claiming about 10% for home based items allowed.(2500 x .10 = 250 sq ft of the designated business office.
My other question is she has not sold any premade quilts - only fabricated quilts that she has pieced together. How do I determine her profit when basically all of this is pure labor on her part? She calculates the cost of fabrication by square inch, and hours performed to get the task done.
Based on labor alone she will never net a profit due to labor and materials used to produce the end product. Correct? I appreciate any help or guidance you can give me on this.....thank you
ANSWER: Hi, Douglas :)
Thanks for reaching out. Let me see if I can help!
I tried looking at arlenesquilting.com and there's no site at that domain. So I'm not sure where you are in the world, but I'm going to assume you're somewhere in the US.
1. Calculating her profit
Her profit is everything above and beyond her expenses. If her fee is only covering expenses, then she's not profitable, and she has to rethink her fee, and/or her expenses.
Because she is, at this point, really running a service business, there's a fee formula you can use to figure out what her fee should be. I wrote a blog post about this topic that you can read here: http://www.virtualmoxie.com/2008/10/are-you-impover.html
It's for a different industry, but the formula and the thinking behind it will be the same for your wife.
2. Deducting the garage
This is something you should ask an accountant. The reason really is this: You can deduct whatever percentage of the home is being used for business--so, yes, the garage, too--but if/when you sell it, you'll pay that money back in capital gains taxes. For some people, it still makes sense to do it, and for others, it doesn't. Only an accountant, looking at your full financial picture, can really say what's best for you.
If you rent, then by all means, deduct everything you can!
Let me know if I can help with anything else...
Warmly,
Stacy
---------- FOLLOW-UP ----------
QUESTION: Need to clarify a few things....
1.) My spouses web link is :
ALENESQUILTING.COM, NOT ARLENE......this is a common mistake made when her name is either mispronounced or mispelled on many docs.
I really be interested in what you think of her web site.
2.) The room she works in is NOT a garage, but a nicely finished quilt work room.
Thank you for your time and help....
Answer Wow! I feel like a dolt for those two mistakes. I'm so sorry, Douglas! Thanks for writing back... :)
My answer still stands about the deduction of the workspace, no matter where it is :) And if you are deducting, you deduct the actual percentage. Is the room actually 250 sq ft?
With regard to Alene's web site...for me, there simply isn't enough information about what she does, how she works, what I need to do if I want to have her do a quilt for me--the kinds of things I would want to know. As is, if I'd been looking for someone to make a quilt, and I'd been referred to her site, there wouldn't have been anything there to persuade me to choose Alene.
The site also hasn't been optimized to be found by search engines. All-in-all, unless the goal is to have the site be there for people she refers to it only (as opposed to people finding her), I don't think it serves her business well at all. Additionally, her having an email address that doesn't make use of her domain is a disconnect for many online buyers--it sends the message of a business owner who isn't especially savvy, or who may be new, or may be operating a fly-by-night operation.
Douglas, tell me this--what *is* the objective of the business? Is it to do a few quilts each year and bring in a little bit of income, or is it something bigger? And where is it in acheiving its goals?
