Tax Mistakes or Tax Breaks Part 4

4_1I love working with stained glass, and have taken several classes in a studio of a private home. The instructor also designed a gift shop area out of a portion of her living room, where she sold stained glass supplies as well as art pieces she created.

Some self-employed people may purchase property and equipment for a business. If they expect that property to last longer than one year, it could be depreciated on the tax return.  Keep in mind that the property must be used or held to generate income.

4_2         The property should have an estimated useful life, meaning you should be able to guess how long you can generate income with it. It may not have a useful life of one year or less, and may not be purchased and disposed of in the same year.  Certain repairs on property used for business may also be deducted.

Tax breaks helped John and Betty live their dream. John loved to fish, and had guided many charters for companies in his home state of Alaska. However, John always dreamed of owning his own fishing guide business, and finally purchased the boat and equipment that he needed.

4_3         At the same time, John’s wife Betty, a piano teacher who taught in a studio in their local music store as well as commuting to student’s homes, decided that she wanted to teach from home. They purchased a new piano for Betty, and she now teaches her students in her home, as well as on Skype for students who are have moved away and desire to continue their lessons. They also converted the lower level of their home to a bed and breakfast.

All of these purchases were tax deductible, and John and Betty felt empowered and quite thrilled with their entrepreneurial dreams that became a viable reality for them.

As fate would have it, they are making twice as much in business revenue then they did with their former job salaries, with the tax advantages as well as their career satisfaction.

When their sixteen-year-old son Peter asked for a $3,000 computer to play video games on, he was told that it was not applicable for their businesses, so 4_4could not be considered a tax deduction or a necessary item to have.

Peter was told that he can earn his desired computer through a job after school or from a business of his own. Peter’s father does pay Peter in the summers to help out with the fishing charter business.  His father also obtains a tax deduction 4_5with his son as an employee, but still would rather have Peter concentrate on school instead of play video games on a fancy computer.

Sorry Peter, not all things are tax deductions. Peter’s dream computer would definitely be a tax deduction if he was using it to create video games for his own business, or for taking courses on how to do it.

Are you making tax mistakes by not getting any tax breaks?