Ignoramus1796 wrote:



I would not touch that business use of home exemption, with a 10 foot
pole.
Well, you need to be careful of claiming the business exemption for
occasional small jobs. But, I don't see a downside. You have to calculate
the percentage area used for the business, it has to be mostly used for
business (again, calculate percentage of time) and you need to have proper
records. I am running a manufacturing business with two lines of products,
one sold to end users (the CNC machine stuff) and another sold to national
labs and universities. I have facilities to machine parts (CNC mill and
manual lathe), sheet metal shear and brake, and assemble circuit boards,
plus some gear used to make essentially fixtures for the circuit board
assembly. So, this stuff doesn't look very hobby-like, I sell over the web
and by purchase order.

I've been doing this, with several product lines, since 1986, and got
professional advice when I set it up. There have been quite a number of
years where I didn't make a "profit" the way the IRS calculates it. When
you lop off ALL those exemptions, depreciation, home use, car mileage,
advertising, shipping, phones, equipment upgrades, and so on, it is easy to
turn what I would initially think was a profitable year into a loss year!
Well, no taxes that year, who am I to complain!

So, they don't seem to be real strict at all with the 3 out of 5 years
profit rule. There are limits to the deductions and such when you don't
turn a profit that year, though. But, I've NEVER had the slightest hint of
trouble doing this. The state audited me about ten years ago because I
claimed a refund when the state supreme court ruled that the director of
revenue was collecting a tax improperly. The auditor came out, reviewed my
books, and told me that I had been paying tax on some stuff that I
shouldn't have, mostly lumping shipping with parts ordered and consumed
rather than sold.

So, at least so far, I think I'm doing it all right.

Jon