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 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!
