"NoNameAtAll" <ksu93dlv[at]aol.comAntiSpam> wrote:

- quote -

You might consider going to Block. Fees might be about
$150. You could probally do it yourself for subsequent
years.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

NoNameAtAll <ksu93dlv[at]aol.comAntiSpam> wrote:

- quote -

Do the customers pay her or pay the company directly?

- quote -

That appears to mean the customers pay the company which
then gives her a commission. In that case, I'd say that
"cost of good sold" is $0, since she isn't buying and
reselling goods.

If the customers pay her directly and she deducts her
commission and pays the company, then the amount paid the
company is the cost of goods sold.

- quote -

The how would you report the income she gets from selling
them after the season?

Seth

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

For this year, at least, have your taxes done by a
professional. They can help you save more than their fee.
Anyone with a first-year business should have their taxes
done professionally. And should have consulted a
professional PRIOR to starting the business.

Carol
What can one expect of a day that begins with getting out of bed.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

"NoNameAtAll" <ksu93dlv[at]aol.comAntiSpam> wrote:

- quote -

You are right to be concerned, especially about #6. I
remember a new client came in some years back after getting
hooked up with one of these "from-home businesses" and
insisting that he, and a whole group of seminar attendees,
had been told that "if you can get your parakeet to make
noise when someone comes to the door, you probably have a
security expense deduction." I thought he was pulling my
leg till he gave me a VHS copy of the seminar and I saw and
heard it myself!

You should be concerned about several items in your list:

1 - Samples - if these happen to be in your wife's size and
she wears them to promote the line, I have a real hard time
deducting them at all.

2 - Mileage - as long as she has kept a log showing her
business miles, the dates, times, and mileage for each
business trip, you should have no problem with this. Many
folks get aggressive with this and try to claim that all of
the mileage on the car is business related - saying they
always stop at the grocer on their way back from a business
appointment, or that all of their trips to the bank and post
office are business related. Be very careful here. You
MUST have a contemporaneous log. Business use percentages
of 100% will likely get scrutinized very carefully.

3 - Meals - you mention for out of town, but the rules are
pretty clear -you have to be away from home OVERNIGHT or you
have to have been at a business related meeting. Simply
eating lunch out while talking to girlfriends about the line
is not sufficient to support this deduction. Having lunch on
the road because she has to travel 2 hours each way to show
also is NOT sufficient to support a business deduction.

4 - Postage and Mailing - normally these are OK, but again
you have be watchful about abuse. It's one thing to mail
notices and invitations and quite another to try to claim
all of your personal mailings as business related simply
because you include a notice in the envelope. I recall a
"product distributor" who wanted to deduct the cost to mail
greeting cards (claims she spent several hundred dollars on
this each year) she sent to her family and friends, many of
whom were thousands of miles from where she lived simply
because she included invitations to the product shows in her
home. How she expected her cousin in Germany to attend a
party in Baltimore on Saturday is beyond me.

5 - Commissions - be sure to document this and to send 1099s
if she paid commissions to anyone of $600 or more.

6 - Clothes purchased for personal use - these are clearly
NOT deductible. There are exceptions for "street" clothes
that but they apply only when street clothes are used for
work, like uniforms or clothes not fit for use outside of
work. For example, if you are a police office your "blues"
are deductible, but if work "plain clothes" your suit is
not. There is an old case regarding an actress (Marilyn
Monroe I think) deducting the cost of a dress she wore in a
movie - the interesting part is that the dress was so tight
she had to be literally sewn into it and could not even sit
down in it.

Lastly, I think you are doing yourself a serious injustice
by NOT visiting a professional preparer, at least the first
time you have to deal with this Schedule C. By visiting
with a tax pro you can do your best to make sure the return
is prepared correctly and you can ask questions about the
particulars of your situation. You can also get information
about the hows and whys that relate the business return. If
after the first time you feel like you can follow what the
preparer did, then at least you will have a template to use
as a starting point. You can also get IRS Publication 17 by
calling 800.829.3676.

Good luck,
Gene E. Utterback, EA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

The only thing about my taxes that is going to be
complicated this year is that my wife started a small
in-home business. She sells Weekenders clothing, which is a
line of women's clothing sold in much the same way as
Tupperware (i.e. she puts on shows at friends' houses and
people place orders for the clothes they want). She does not
have an inventory like a regular store because she only
places orders when a customer wants a specific item, though
she does have a lot of "samples" that she uses during the
shows to demonstrate the line of clothes. These cannot be
purchased by customers, though once the season ends and a
new line comes out she can sell the samples if anyone wants
them. At that point she then has to buy a new set of samples
for the new season.

In 2003 this little hobby ended up losing money to the tune
of nearly $2,000. Obviously I would like to deduct this as a
business loss on our 1040 (we file jointly). To do so I
assume I need to use Schedule C. However, the instructions
for Schedule C are not very helpful and I'm afraid I might
make a mistake without some guidance.

The gross receipts are easy to calculate because she gets a
commission on the sales she makes expressed as a percentage
of the sale amount. The expenses and costs of goods sold are
more challenging for me. They are as follows:

1. Samples (Line 38?)
2. Mileage (Line 24a?)
3. Meals for out-of-town shows (Line 24b?)
4. Postage and mailing supplies (LIne 38?)
5. Commissions paid to people who host shows (Line 10?)
6. Clothes purchased for her personal use but still used as
"advertising" to promote the clothing line. Also used
during shows the same way samples are, except that she
wears these while the samples are for the customers to
try on. (Line 8?)

I'm a bit concerned about number 6. Another sales rep told
her she could deduct every single piece of clothing she buys
from Weekenders for her personal use because it counts as
advertising. This sounds a little too good to be true to me.

I'm also confused about Part III, Cost of Goods Sold,
because there really is no beginning or ending inventory
given the nature of the business. The closest thing to an
inventory would be the samples, but those are not for sale
and I figured I'd count them as "materials and supplies"
under Line 38.

If the rest of my taxes were this complicated I'd go to an
accountant, but I can easily do our 1040 and Schedules A&B
without any assistance and it seems like kind of a waste to
pay an accountant several hundred dollars just to figure out
Schedule C for us, especially considering that in the end we
have a loss rather than a profit. Any help would therefore
be greatly appreciated. If there's a book or web site that
specifically addresses my questions that would also be
helpful.

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->