Let's talk taxes....

iVillage Member
Registered: 12-12-2002
Let's talk taxes....
13
Fri, 04-11-2003 - 1:22pm
Okay, I'm just now getting my taxes ready to go to the CPA on Monday. Yes, I realize that I am a procrastinator. I had intended to get them done in Feb, but then hubby was in the hospital for 5 or 6 weeks, and he didn't get out until March, and then we had to deal with all the military crap that we JUST got taken care of this week, and now my surgery....lol...okay, there isn't really an excuse, I just didn't want to do it! :)

Here is the thing. I didn't work last year. Hubby is military, so that should make our taxes easy, right? WRONG. Hubby is also bringing in money from social security for disability, as are our children. The social security money isn't taxed unless your total family income is over $X (not sure what it is, but I don't think we are over it), and then only like half of it is taxed. But you do have to pay social security taxes on it (if that makes sense). THIS is why we are doing the CPA thing. All in all, it isn't that big of a deal though, even with hubby being a resident of a state other than the one in which we reside.

BUT...I worked out of my home last year. I was babysitting, as well as doing my cake decorating. All in all, I pulled in a VERY little amount of money, but according to the laws on taxes, I have to claim it. Well, if I'm going to claim it as income, I also get to do the home-based business deductions, which includes a portion of our lot rent (own the house, but rent the land), electric, gas, phone, cable, internet, etc. It includes a portion of my car insurance and home insurance. And I can claim the money I paid to have my yard mowed each week.

The problem is that I am having a moral issue with this. I chose to take less $$$ for my babysitting a friends children because they needed the help. I took only $100 a week for FOUR kids (that is $100 total, not per kid). So my deductions are WAY more than what my income was, meaning I will be entitled to a HUGE refund (if my thinking is right, and I will admit I'm not the best person when it comes to taxes, but I'm determined I'm going to learn, and I will by next year!).

So what do you do in a situation like this? Go ahead and claim all the deductions I am entitled to claim, and just let it offset the social security taxes on the SS income and then still have some extra left over as a refund? That just seems sooooo wrong to me.

So, how have you guys handled it when you were working out of your home (I know some here do). I'm soooo confused!

Okmrsmommy-36, CPmom to DD-16 and DS-14

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iVillage Member
Registered: 03-26-2003
Fri, 04-11-2003 - 1:25pm
You can't claim business expenses in excess of business income, I'm pretty sure. So you won't necessarily get a big refund. Right, you CPAs out there?

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iVillage Member
Registered: 03-26-2003
Fri, 04-11-2003 - 1:27pm
I don't know what the law is in your state, but you may not be able to take any deductions at least not where your child care earnings are concerned. If you're required to be licensed and you aren't, then you have to claim the income but can't take any deductions.

Are you required to be licensed? I can't remember your particular situation.

Sue

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iVillage Member
Registered: 03-26-2003
Fri, 04-11-2003 - 1:29pm
Clarification on the home business deductions. You can only deduct a portion of your rent/mortgage, etc if that physical portion of the home is used SOLELY for business purposes. (At least that was dh's understanding when I did the WAH thing). We were able to claim the deductions because I used a spare room as my office. It was not part of our normal living space.

And from what I understand, the deductions are not a set amount, its a percentage etc. I don't think it will work out that you get more back in deductions than you took in income. The IRS may be a PITA, but they're not stupid! lol Basically, you're saying that YOUR (not dh's) AGI would be negative and I don't think they let you do that.

Here's what I suggest ... have your CPA prepare it two ways. One as if it wasn't a home based business and you just had extra income and one with all the deductions, etc. Take a look and see.

Hollie

iVillage Member
Registered: 03-26-2003
Fri, 04-11-2003 - 1:30pm
In all the years I've been in the dc business, I've taken a loss one time. I think you can, but I don't think you can do it too many years in a row or your business isn't considered a business anymore? Am I right??

Sue

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iVillage Member
Registered: 03-26-2003
Fri, 04-11-2003 - 1:34pm
Child care is different though. It's not like having a home office. When you have a child care business in your home, you use up to 100% of your space. I know I do and that's what my accountant claims.

Sue

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iVillage Member
Registered: 12-12-2002
Fri, 04-11-2003 - 1:39pm
That is the way it was explained to me, you CAN take a loss on a home business, but only for 3 years in a row. Then the IRS will shut you down from doing it again. I just NEVER thought about the taxes angle when I agreed to babysit for her, so here I am at the last minute, getting all this stuff together for her!

Okmrsmommy-36, CPmom to DD-16 and DS-14

iVillage Member
Registered: 12-12-2002
Fri, 04-11-2003 - 1:40pm
The way it was explained to us, it isn't just areas of your house you use solely for the business. it is any areas that you use period. But you are right, it is only a percentage of the electric, gas, rent, insurance, etc. It isn't all a tax deduction. UGH...what a nightmare!

Okmrsmommy-36, CPmom to DD-16 and DS-14

iVillage Member
Registered: 03-26-2003
Fri, 04-11-2003 - 1:40pm
Embarrasing as it is to admit, I did operate at a last year. Most of it was due to set up expenses, equipment, software etc. I don't know if there is a limit as to how many times or for how long I can claim a loss, but my accountant said it was pretty common in start ups.

At his advice I did not claim a portion of my mortgage or the common areas even though I do have a home office. I think with a home daycare business that is a whole different ball of yarn.

SUS

iVillage Member
Registered: 12-12-2002
Fri, 04-11-2003 - 1:42pm
Exactly...I have done home business before. When I was working as an insurance agent, I kept an office at home, and had no issues with the deductions b/c I was working FT, and pulling in great money. But this time, I have really used my entire home for daycare purposes, and my income is SIGNIFICANTLY less than in previous years that I worked from home.

Okmrsmommy-36, CPmom to DD-16 and DS-14

iVillage Member
Registered: 03-26-2003
Fri, 04-11-2003 - 1:44pm
Didn't know that. Thanks. And that applies to her babysitting, but not her cake decorating, I believe.

learn something new every day.

Hollie

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