The end of Dot-Tone-Designs?

[Dottonedan]

I don't know if my accountant is top notch or not, but my taxes aren't being run by turbo tax I can assure everyone.

It's not that I can't take "any" deductions, but I'm told there are are specific levels I guess of deductions in different tax brackets and at the 25% tax bracket, I don't have enough to be able to use the deductions. I could have the details wrong.

[GraphicDisorder]

I don't know if my accountant is top notch or not, but my taxes aren't being run by turbo tax I can assure everyone.

It's not that I can't take "any" deductions, but I'm told there are are specific levels I guess of deductions in different tax brackets and at the 25% tax bracket, I don't have enough to be able to use the deductions. I could have the details wrong.

Which only likely means you are taking the standard deduction since you do not have enough deductions to exceed the standard deduction. You are still getting a deduction though.... 

[mk162]

let also face it that tax law is ever changing and what may have been true 5 years ago may no longer be the case.

[Frog]

We may ave some terms confused here.
While "deduction" limits definitely may be dependent on brackets, I have to believe that what qualifies as business expenses (like the direct and indirect expenses of using your home for business) in part 2 of the Schedule C (Profit or Loss of Business) do not.

[GraphicDisorder]

I would not try to write off the portion of the home your using for your business, if heard some horror stories of that. But Dot Tone Designs must have some expenses I would suspect. Software, computer, internet just being a few. But largely your services do not have a lot of expenses on your end. Basically you are using knowledge, a computer and Photoshop. So your margins are great. Haha. Take your 25% tax and put the rest in your pocket sir. It's not that complicated. Unless you are just looking for a way to quit doing it.

[Frog]

I would not try to write off the portion of the home your using for your business, if heard some horror stories of that. But Dot Tone Designs must have some expenses I would suspect. Software, computer, internet just being a few. But largely your services do not have a lot of expenses on your end. Basically you are using knowledge, a computer and Photoshop. So your margins are great. Haha. Take your 25% tax and put the rest in your pocket sir. It's not that complicated. Unless you are just looking for a way to quit doing it.

I don't understand. For close to thirty years, our home has been the legal location of three businesses for us, and we have followed the rules to the law.
When one gives up 25% of their home to exclusive use for the business(s), one gets to list 25% of the related expenses. My accountant has never suggested otherwise. If Dan uses one room strictly as a studio, or home office, then it isn't a bedroom anymore and is now part of his business.

What horror stories? Can they stem from questionable "exclusivity"? When my wife ran a home childcare facility, I believe that hours of day in use played into it, but for my shirt decoration business, it's a simply a matter of the percentage of the residential property that I gave up for the business.
I should add that I am very conservative on this, and don't play games with the rules.
I literally gave up 25% of my home, and don't even count the additional outbuilding where actual production is done.

[GraphicDisorder]

I would not try to write off the portion of the home your using for your business, if heard some horror stories of that. But Dot Tone Designs must have some expenses I would suspect. Software, computer, internet just being a few. But largely your services do not have a lot of expenses on your end. Basically you are using knowledge, a computer and Photoshop. So your margins are great. Haha. Take your 25% tax and put the rest in your pocket sir. It's not that complicated. Unless you are just looking for a way to quit doing it.

I don't understand. For close to thirty years, our home has been the legal location of three businesses for us, and we have followed the rules to the law.
When one gives up 25% of their home to exclusive use for the business(s), one gets to list 25% of the related expenses. My accountant has never suggested otherwise. If Dan uses one room strictly as a studio, or home office, then it isn't a bedroom anymore and is now part of his business.

What horror stories? Can they stem from questionable "exclusivity"? When my wife ran a home childcare facility, I believe that hours of day in use played into it, but for my shirt decoration business, it's a simply a matter of the percentage of the residential property that I gave up for the business.
I should add that I am very conservative on this, and don't play games with the rules.
I literally gave up 25% of my home, and don't even count the additional outbuilding where actual production is done.

I was told early on that one of the biggest red flags to ending up getting hit with an audit is writing off part of your home as a business expense. That came from no less than 3 accountants. Now I am sure as home base businesses have become more popular maybe this has gotten to be less of an issue. But that was what I was told back when I was running my shop in a basement so we elected not to write off the space as we knew we were not going to be there super long anyway. A family friend of ours was claiming part of his home for business use. He had to pay back some of the taxes when he sold his home. I am not sure if that was a timing thing but I know he was hit pretty hard with it and his feelings where that the savings were not worth it to do going forward after he moved to a new home. He was a VP of sales for a large company and used a single room in his home to work from so it wasn't like it was something shady.

In the context of my reply, I assume Dan to be occupying basically a desk/computer in a room to do seps/artwork. Not even rendering that room useless. I wouldn't bother for the write off on that personally. If he was consuming 25% of a home for it like a screen print shop would and basically making the room/space useless otherwise, I would then yes likely do it. But id seriously have a good accountant confirm what the do's and don'ts specifically are.

[Dottonedan]

Correct, from what I understand, of course we are getting the standard deductions but it's the business end, that sends me into that higher bracket ...and as such, a higher deduction range (in order to take advantage of "business deductions).  So they are saying, that for my business, I don't have (enough) legit deductions to qualify to use my 20-25% of my house.  If I made less, I could. If i had more and more duductions (like you all) who have many deductions and may never be in the range to experience this, I could, it's available if I bought business stuff, I just don't.  I'd have to buy equipment I don't need, just to raise me up enough to reach the new level required (at the 25%) tax bracket deductions.  (As I understand it).  Still haven't gotten in to speak with them on this in detail.

[GraphicDisorder]

75% of money is still more than no money... LOL

[mimosatexas]

I'm not an accountant, but that just isn't how taxes work as far as I know.  Deductions are deductions (when it comes to how much you are actually bringing home after taxes anyway), and they will always bring down your taxable income.  Making more money with fewer deductions does not mean you lose money, it just can't mean that... 

The only reason to purchase equipment etc is if you are having an extra profitable year and want to offset your tax burden as a result, but again this isn't losing you money, its just helping you keep more of your money by using a deduction AND benefiting from that new equipment.

I think either they aren't explaining something well, or you should seek a second opinion.

[GraphicDisorder]

Maybe this will help you understand, I tried to find a chart to make it easier to see but this was best I could find on the fly:
If you make $50,000 in taxable income, then $7,550 is taxed at 10%, $23,100 is taxed at 15%, and the rest, $19,350, is taxed at 25%. That means you pay a total of $9,057.50 in income tax (this example was using old tax bracket levels but the same applies to new bracket levels).

Great Video on it here and pretty much covers your tax bracket concern:
https://www.youtube.com/watch?v=Qm1hn3N5M14

[Dottonedan]

Fair enough.

Bottom line is, I can't make use of full deductions or any more than I already am,
I have limited time for the seps work, so I can't do any more than I am,

I'm taxed higher (on anything that I can do,

I don't have more deductions to offset,

I have little family time due to full time, overtime and side work,

So I think I'll choose to cut way back on the sep work.


I completely understand what you all are saying.
Thanks for the conversation/feedback.

[Frog]

Fair enough.

Bottom line is, I can't make use of full deductions or any more than I already am,
I have limited time for the seps work, so I can't do any more than I am,

I'm taxed higher (on anything that I can do,

I don't have more deductions to offset,

I have little family time due to full time, overtime and side work,
So I think I'll choose to cut way back on the sep work.


I completely understand what you all are saying.
Thanks for the conversation/feedback.

THis is all that counts.

[GraphicDisorder]

Fair enough.

Bottom line is, I can't make use of full deductions or any more than I already am,
I have limited time for the seps work, so I can't do any more than I am,

I'm taxed higher (on anything that I can do,

I don't have more deductions to offset,

I have little family time due to full time, overtime and side work,

So I think I'll choose to cut way back on the sep work.


I completely understand what you all are saying.
Thanks for the conversation/feedback.

No worries, we were all just trying to make you understand you were not being taxed on your complete income at a higher rate is all. I totally understand the free time thing and don't blame you there at all. Good luck either way you go.

[tpitman]

"I was told early on that one of the biggest red flags to ending up getting hit with an audit is writing off part of your home as a business expense. That came from no less than 3 accountants. Now I am sure as home base businesses have become more popular maybe this has gotten to be less of an issue. But that was what I was told back when I was running my shop in a basement so we elected not to write off the space as we knew we were not going to be there super long anyway. A family friend of ours was claiming part of his home for business use. He had to pay back some of the taxes when he sold his home. I am not sure if that was a timing thing but I know he was hit pretty hard with it and his feelings where that the savings were not worth it to do going forward after he moved to a new home. He was a VP of sales for a large company and used a single room in his home to work from so it wasn't like it was something shady."

Sounds to me like he was depreciating the business portion of his home for tax purposes, which is legal, but comes back to bite you when you sell. That's different than claiming expenses, such as electricity, or internet access, or water and sewer. I don't depreciate the portion of my home for business, mainly because I'm so close to paying off the mortgage, but I do claim a portion of my utilities based on the square footage that the business occupies.
One other issue that got the attention of the taxing authorities awhile back was people having "home offices" and claiming "expenses" by sticking a file cabinet in their bedroom and calling it an office. It has to be dedicated space to the business exclusively.