posted
As I put my new office together, I got to thinking about how to write it off.
For those of you that are home based, do you "lease" (or "rent") your office area to your business?
I am going through the math and I am setting on 395 square feet of actual office area, 115 square feet of storage (on the same level, ie, behind the walls there is an area of 2.5' x 23' on each side of the office that I am setting up to serve as storage like off cut material, past years filing, etc.) and 300 sq feet of storage (attic space).
Since this is an out building, and not attached to my home, I am thinking that Kottwitz Graphics can "rent" this from Mr. & Mrs. Kottwitz to serve as a place of business. I do know that the retail locations in the area are going anywhere from $7 to $12 per sq foot, so since there is no running water/restroom facilities, it would be worth say $3 to $4 per sq ft. (for a cost of $1185 to $1580 per mo.)
Any downside to this thought?
-------------------- Mark Kottwitz Kottwitz Graphics Ridgely, MD www.SeeMySignWork.com -------------------------- Imagination is more important than knowledge. -- Albert Einstein Posts: 749 | From: Ridgely, MD | Registered: Oct 2000
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posted
Time to ask the accountant. Home offices get a lot of attention from the IRS, you want to set it up right. But I like the idea of renting from yourself, and since it's a seperate building it might work.
posted
I'm not sure but I think it's a wash. Because you and the biz are the same entity, you end up with the same profit for tax purposes.....ya just spend more time writing yourself checks.
I'm not an accountant but I did sleep at the Holiday Inn last night!
Joe,
Makin Chips and Havin Fun!
-------------------- Joe Cieslowski Connecticut Woodcarvers Gallery P.O.Box 368 East Canaan CT 06024 jcieslowski@snet.net 860-824-0883 Posts: 2345 | From: East Canaan CT 06024 | Registered: Nov 2001
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posted
Bill's got the right idea Mark, talk to your accountant. He (or she) will advise you on the best approach to take. I expect to meet with my CPA in the next couple of weeks to sort my situation out My accountant advised me to take a "draw" from the busines when I need it and he'll straighten it all out when it comes to tax time. So, from my experience so far, your "rent" will vary depending on how well the business is doing and how the company is set up. As a corporation, I expect that the company will reimburse me based on the company's income. In theory, I'll draw income from the company something like this... 1/3 rent and overhead - not taxed 1/3 taxable income - with income taxes paid 1/3 dividends - taxable as income, but you don't pay Federal income tax or similar withholdings.
Havin' fun,
Checkers
-------------------- a.k.a. Brian Born www.CheckersCustom.com Harrisburg, Pa Work Smart, Play Hard Posts: 3775 | From: Harrisburg, Pa. U.S.A. | Registered: Nov 1998
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posted
We don't rent from ourselves... like others said it is a wash... charge from the business and then pay tax anyhow.
But we do write off a percentage of the expenses based on the square footage which the business occupies. Our office for the business is in the house and as such is tax deductable. Janis writes off a portion of all the costs of the house and charges it to the business... electricity, water, gas, maintenance, taxes etc...
The shop is a separate building and has its own meters for all utilities. These costs are all deductable. While the building is a personal asset any costs directly related to the business is tax deductable.
If and when we ever sell our property there is no capital gains payable... which would be if we were to make the business own any of it.
Your accountant will be able to tell you how the laws work in your area.
-grampa dan
-------------------- Dan Sawatzky Imagination Corporation Yarrow, British Columbia dan@imaginationcorporation.com http://www.imaginationcorporation.com
Being a grampa is one of the the most wonderful things in the world!!! Posts: 8740 | From: Yarrow, B.C. Canada | Registered: Nov 1998
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posted
The reason it may be advatageous to rent to yourself is because of the depreciation involved, not the actual rent income. Rental property can be depreciated and it can be a nice chunk of change. But there are consequences when the property is sold. It's stuff like that makes a lot of acountants boat payments.
quote:Originally posted by Tim Whitcher: Be aware that the space has to be used exclusively for the business, so you can't store your snowmobiles there, etc.
Yeah, its an upstairs office...I don't have snowmobiles, but getting my bike up and down the stairs would not be fun, not even for Evel Kenevel.
-------------------- Mark Kottwitz Kottwitz Graphics Ridgely, MD www.SeeMySignWork.com -------------------------- Imagination is more important than knowledge. -- Albert Einstein Posts: 749 | From: Ridgely, MD | Registered: Oct 2000
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posted
I am incorporated, so the corp. rents from me personally. The big advantage is in taxes. Rental income is not subject to social security taxes which comes in at around 17%. If your rental income is $10,000, you save $1700 in taxes.
-------------------- Carper's Signs 594 Union School Rd. Mount Joy, PA 17552 carpersign@earthlink.net Posts: 157 | From: Lancaster, PA, USA | Registered: Aug 1999
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posted
From my tax attorney: total sq. footage of house and outbuildings that are "heated" (this is a very vague and flexible requirement that is in the tax code)-- then figure up sq. footage of space that is used for business purposes (or home office) (There are specific requirements, but many are in your favor- like storage, office equipment, utilities, improvements, etc...) This percentage must be less than 50% of total sq. footage (the less %, the less likely for them to hassle you, unless they just feel like it.)
Talk to a true small business tax attorney, not an average accountant, they can give you all of the do's and dont's to keep things legal and help benefit your business. Accountants generally are very limited in how to truly understand the tax codes for sole-proprieterships and just go with the most conservative approaches-- which could end up costing you much more than it should to have your own business. With all the bad stuff going on I don't blame them for covering their butt the easiest way posible for them, but not at my expense.
I have a couple of clients who are certified tax attorneys, so they have helped me understand what I can and cannot legally do to help my business.
It's better to know the right way on the front end than to let the irs give it to you in the back end.
-------------------- Michael Clanton Clanton Graphics/ Blackberry 19 Studio 1933 Blackberry Conway AR 72034 501-505-6794 clantongraphics@yahoo.com Posts: 1736 | From: Conway Arkansas | Registered: Oct 2001
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