I've turned my woodworking hobby into a custom cabinet business and
have been researching a little on how it will affect my income taxes
this year. So I have a few questions, Here's my situation:
I do have a day job so this is more of a hobby that will generate a
little extra income. As far as tools and startup costs my grandfather
was a cabinet builder by trade and left my dad most everything I need,
lathe, table saw, jointer, radial arm saw, drill press, and various
hand tools. We moved all that machinery to my garage since it's
heated and can be used year round. So my start up costs are minimal, I
got a finishing nailer and a planer so that's about it so far. Can
the new tools that I've bought be depreciated? If so, is there a
guideline over how many years tools can be depreciated over?
I have a both an attached and detached garage which I've made the
workshop in my attached garage. I've moved everything that I consider
personal property to the detached garage so the attached garage is
used soley for the business. Can I write off the location of the
business? How do I figure out the value of an attached garage? Would
I even want to, are there considerations I need to know about before
This first year I doubt I will turn a profit because of the new tools
I bought but the pipeline looks pretty good from word of mouth
advertising. Several people have approached me to build them
something. So next year I believe I will show a profit.
For materials that I use I pay sales tax on and charge sales tax for
the end product. Are these materials fully deductable? Also, items
such as saw blades, sandpaper, etc stuff that wears out after limited
use, can that be deducted as well or does that have to be depreciated
too? Does that fall into a different category as it is not a durable
My truck I use for both personal and business use. Mainly the business
use is getting supplies and delivering product. If I keep the truck
as a personal vehichle can I at least write off the mileage when I use
it for business?
I've been saving reciepts for everything I do concerning the business
and I also keep a record of where I go and for what when it's bisness
What else am I missing?
Up to the limit of your income. You need some IRS booklets. Check their site.
It's a little like a home office. You can write it off, up to a percentage of
your income, I think. I have a home office and a shop. I do NOT bother taking
the home office off, because it creates an IRS flag...been there, done that, do
not EVER want to do it again if at all possible. Annual audits are a distinct
PITA and IRS is not your "good hands" people.
Basically, you need a good tax guy. Avoid, like the plague, the various chain
tax outfits that do a fast rock and roll (usually wrong) on the average
person's taxes. Find a good local guy or gal and get them to set you up as an
independent business. It costs a couple hundred bucks, but is well worth it in
the time and trouble is saves you. Your tax accountant can answer all your
questions about deductibility with much greater accuracy than most of us are
apt to have for your individual situation.
Yeah, you write off materials, you also write off mileage at whatever IRS's
established rate is for a particular year...usually about a dime a mile less
than it actually costs to run the vehicle. Last I recall was about 36-1/2
Talking to your tax person is what you're missing. You need to be set up NOW if
you expect to be making a profit next year. You want to deduct every dime that
is legal, without missing any, but you do not want to deduct things that aren't
legal (though you may want to deduct arguable expenses and wait and see...but
have the money ready to pay if IRS says no). Really, the only way to be sure is
with a good tax person (and they're not as easy to find as you might think:
there's a pee pot full of 'em out there, but not all of them are good,
especially for the small businessman).
"Telephone, n. An invention of the devil which abrogates some of the advantages
of making a disagreeable person keep his distance." Ambrose Bierce
A good tax accountant will not "cost" you anything. They will be sure you
get all your deductions and save you hours of hassle. You may have some
cash outlay, but you will get that back in overall savings at the year end.
Your business will be set up properly and you will be aware of all the
possibilities of income and deductions available to the self employed.
If you go to a tax audit, you don't want to have to say "a guy in the
newsgroup told me it was deductible" unless you want to see him laugh
Find a CPA real quick, noone here is qualified to advise you as to your
situation. If you don't know any then talk to some business owners that
you do know and ask them for references. It's both time & money very
well spent. My CPA has been a godsend for 17 years.
An unkind remark is like a killing frost. No matter how much it warms
up later, the damage remains.
I am doing the very same thing that you are getting ready to do. The fellow
that said get a good CPA was absolutely correct.
The one thing that no one mentioned , at least that I saw was the
big insurance problem, or should I say the wrong insurance. Home insurance
will not cover
your tools, or building, If you use your vehicle to do business, most
likely that vehicle can be denied when in an accident. The insurance
company will not pay if
they suspect that you are running a business out or your garage., in the
case that you have a fire. Also the real big one is the liabililty
insurance, that covers you if
something that you build causes an accident, years down the road. My
insurance policy does not allow me to build a baby crib. This may sound
crazy, but for
those of you that have not talked to an insurance agent about this kind of
coverage, are clueless.
My insurance,liability, shop coverage for $15,000.00 of tools and
that is low, and the commerical insurance for my 2000 chevy, comes to
$300.00 per mo.
They base your insurance rate from past coverage, since I had no
past coveraged, mine will start high for the first 5 years, then after I
have a sort of track
record , it will either go up or down accordingly.
It is base on dollar amount earned.
been there done that,
also get incorporated, to protect your personel property, Also get some
To date I have spent $125.00 . The insurance is the big scare.
I believe you can depreciate 100% in the first year for equipment under
about $20K. You use form 4562. You can also deduct your home office and
shop, form 8829 part III. Materials (e.g. lumber) are part of the cost of
goods sold. They get subtracted directly from income. Consumables (e.g.
nails, glue, sandpaper, biscuits etc.) are also deductable as are office
supplies, and machine maintenance. Milage on your truck is deductible at
about 36 cents per mile (Quicken has a mileage tracker that is very useful).
I think it is wise to get the advice of a tax consultant, but I use Quicken
Home and Business in combination with TurboTax which I find just as good and
Since this is what I do for a living, I would strongly suggest that you seek
a good accountant or tax consultant. I have seen many people get in BIG
trouble by listing to People that they think know the answers but are only
retelling urban legends and misunderstood law.. Beware of software that
claims to have all the answers because it matters which version you
get(turbo tax ,taxcut , Peachtree,quicken etc) as to the accuracy you get.
Allied tax service
Having my own business has been a lesson learned (the hardway $$$), first
get advice from a qualified person. Second only have a Tax lawyer do your
taxes. Why? simple if you ever get audited then the lawyer only has to give
what they want to give to IRS. Whereas a CPA etc. must supply everything to
the IRS. We have a Tax lawyer, CPA, and book keeper. Also, you must
incorporate very very important! It should run you about 1500 for startup
mabey less mabey more.
On 19 Nov 2003 08:34:10 -0800, firstname.lastname@example.org (Mark) wrote:
You've already gotten much good advice about contacting a professional
to deal with the financial/tax end of setting up your business.
My concern would be that you might get put off by the whole idea if
you tried to do everything at once.
If you are thinking of making cabinets as a second source of income
now, with a view to it being your primary source of income in the
future, you might want to follow the 'toe in the water' approach.
Do contact a CPA but try to get one who is knowledgeable about the
business you are trying to enter. The first CPA that I went to had
unrealistic expectations about shop rates. It wasn't that he was
wrong, he simply had no real world experience in the prevailing rate
for small cabinet shops. Had I charged according to his counsel, I'd
never have won a bid.
Some accountants want you to run a double entry bookkeeping system but
I've found Quicken Home and Business to be just fine, and that is
after using Quick Books Pro for a few years. Some accountants like
Peachtree better. I don't know what you use for your home stuff but
it's best if they are the same package.
I would speak with some of the shop owners in your area and try to get
some recommendations. I've found those in the business to be of a
collegial frame of mind, rather than being competitive to the degree
that they would give you no, or bad information.
You will need help from them to find out where to buy your materials
and what people to deal and not deal with in your local market.. Many
shops pass around contracts or form temporary alliances when their
work load gets too high. They may not include you before you prove
yourself a bit but you may become mutual resources for each other.
Get yourself on the list for some of the trade magazines that are
geared to small shops. Cabinetmaker is one good one and Custom
Woodwork Business is another. These are free to the trade. They have
plenty of articles on the business end of things.
Go over to www.woodweb.com and look through the various forums. The
info there is a bit better than on Usenet but the usual caveats apply.
There's no reason you can't start out as a Sole Proprietor. It is the
simplest form of business and has the least amount of bookkeeping and
reporting involved. As your business grows, you can decide what form
might be best for you.
Insurance runs high and low and must be shopped for and budgeted for
carefully. I've seen many guys run their monthly nut up too high by
buying more insurance than made sense.
I don't know what your zoning situation is where your shop will be
located but you might want to look into it. I've seen shops shut down
because the neighbors started raising hell about huge lumber and
plywood trucks tying up the road in a residential area. Then too,
I've seen many shops operate sub rosa in a residential zone with no
There are lots of seminars on business and techniques that you can
attend. I've found them through my suppliers.
You are, eventually, going to have to form a business plan, in order
to have any structure that will be countenanced by a lending agency.
It's also a good discipline in and of itself, because it makes you ask
yourself questions that need to be asked.
Other than that: buy low and sell high - get your materials for the
right price and charge what the market will bear in you area; charge
enough money to make a profit and put a good chunk of the profit back
into the business; decide if you want to be a mechanic your whole
business life, or if you will want to run a shop with employees.
Don't give up your day job, yet.
Thomas J. Watson-Cabinetmaker
Gulph Mills, Pennsylvania
Tom, thank you. Every once in while I find a response to a post falling
into the "that's what I would have wrote" category. problem is I do not
have the experience to make those statement and sound plausible.
What you have stated is my current plan. I am not trying to quit my day
job but gain the experience (and reputation) gradually over the next few
years so i can use the income as a retirement supplement.
As for zoning, you are very correct. My planning board was very helpful
and suggested that since I would not have 10s of clients running in and
out my driveway they would not recommend rezoning. if there were
complaints by the neighbors at some point there would be no fine (my
request was noted in the log book) we would just start the process then.
I would recommend checking with the local authorities, every location
Tom Watson wrote:
Looks like a lot of folks here have their own businesses, so I
hope some can reply to the question, cloaked with the anonimity
of the internet...
what are the margins like with your own small business? folks
get to buy prosches, of beat up chevys?
irax - thought of starting something so many many times...
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