I have had my Tax ID Number for about six years, but this is the first year that I have actually done business. I have not made over 0 as of yet, and doubt that I will by the end of 2007. However, I have several business accounts in which i have purchased things for my business: Dell, Staples and Office Depot. I also have other business credit cards: FedEx Kinkos and Exxon/Mobil.
If I were to use any of these accounts for my personal use, but separate the business charges from the personal charges is that a problem? I bought a computer for 0 and some minor office supplies, so can I write that off at the end of the year even though I haven’t made but a little over 0 profit? I do my side business part-time because I have a full-time job. I am planning to join the Chamber of Commerce in January of 2008, but what are the stipulations for writing things off when you’re not making a profit. Obviously you need to advertise and market your business first, right?
Please do not suggest that I talk to an Accountant. I understand that I will eventually need one, but right now I can’t justify paying an Accountant when I don’t have any steady business. By the way, my business consists of Administrative and Clerical services and I will provide computer training.
Ordinary and neccessary business expenses.
Good question. First, you should separate your personal spending and your business spending. Keep all receipts and keep good records. As long as you keep track carefully, there should be no problem with using the accounts for personal and business purposes. Second, some misconceptions. You do not have $200 of profit; you have $200 of revenue. Next, your computer is equipment that will last 3-5 years while your office supplies are current assets usually used up within the year.
You should file your business revenues and expenses on Schedule C of your 1040 personal income tax return. You can select the cash basis of accounting, which means revenue is all money collected from clients and expenses are all money paid. Expenses also include depreciation of equipment. List total revenues and total expenses. Subtract the expenses from revenues and you will have net income or net loss.
On the depreciation form, you can write off your computer in full under section 179 of the tax code, but in that case you cannot depreciate it. You will have a loss for the year on Schedule C, which you transfer to page 1 of form 1040. This will reduce your other taxable income. A start-up business is expected to have losses initially.
If you use your car for business, it is simplest to deduct mileage rather to depreciate the car. Keep track of your business driving. You may want to save yourself some problems and not claim part of your home as a business expense if you are operating it from your home. However don’t forget to deduct as expense any portion of your telephone, utilities, and insurance that applies to your business if you are running it from home.
Good luck with your business.
If you have credit cards that you use both for personal and business purposes, that is not a problem. Just keep track of your business purchases. Keeping such purchases on a separate card is a convenience but not a requirement.
You need to be clear about what income you have. You say you have not made $400 yet. Is this your profit, or your revenues, or what? Same comment about what you mean by $200 profit.
Revenues – Expenses =
Profit (if positive) or
Loss (if negative)
You do not have to show a profit to take deductions. The categories of deductions are listed on Schedule C:
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf
For example: Advertising, Car and Truck, Commissions and Fees, …Office Expense, etc. You may want to print out and look at the Instructions to Schedule C which explains each line of deductions:
http://www.irs.gov/pub/irs-pdf/i1040sc.pdf
If you study the above document you will be able to do your own Schedule C tax return.
You are not required by the IRS to advertise and market, although those expenses are deductible.
You bought a computer. Taking a Section 179 deduction for a computer is possible only if you use the computer for more than 50% business use. If you used it for more than 50% business use, you can take the Section 179 for that part of business use. However you better be sure that the computer will remain a business computer for five years, or you will have to recapture the Section 179.
You can deduct your Chamber of Commerce dues on Schedule C.
If you do not show a profit after three years, the IRS may reclassify your enterprise as a hobby, for which you cannot take a loss.