An Etsy seller asks: Bought in 2009 can I deduct in 2010? Yes.

Hi June!

I am just starting out with an online crafts store through etsy.

Your website is very helpful--answering questions I had and didn't know that I had! I got your list of deductible business expenses, and I think I probably know the answer to this, but wanted to check: Can I deduct the purchase of my computer from 2009 as a business expense?

I have just begun my business in January 2011. Does it have to be an expense purchased within 2011 to claim on my 2012 taxes?

Many thanks,
Michele
Colorado Springs, CO


Dear Michelle,

The years in your question are a bit confusing so just to be clear: What happens between January 1, 2010 and December 31, 2010 are all part of your 2010 tax return. Even though that return is not completed until 2011 it is your tax return for 2010.

Yes, you can deduct something you bought in 2009 on your 2010 tax return. Here's how it works:

Let's say you started a new business on January 1, 2010 and needed a computer. You bought a used MAC from the guy next store. Paid him $3000. He had paid $5000 for it new a couple of years ago. You get to deduct the $3000 computer purchase.

The same holds for equipment, supplies, a library, etc. you already have prior to going into business. Think of it as buying something used from yourself for your business.

So if in 2009 you bought a computer for $2000 and on January 1, 2010, when you became an indie, you could have sold that computer to a willing buyer for $1400, then you have a $1400 computer that you "bought" for your business and you get to deduct that purchase.

This is called converting from personal use to business use. I cover it in my book Self-employed Tax Solutions where Caitlin Caterer goes from cooking for her family to starting an indie business and even before going into business already has much of what she needs .

I wish you success in your new venture!
June

PS: Is that the answer you expected?

Husband & Wife with More Than One Business

Hi June.

I love your site. I will be buying your book from your site.

My questions is this. I setup an LLC to run my business expenses through. I have several ventures: Podcast, Web Design and support, my wife makes mosaics and sell them at Festivals, and we are working on a book.

Do I keep the income and expenses for each of these separate? Or can I track them all together?

Thank you for your support and excellent web site.
Terry
Cedar Park, TX


Hi Terry,

So glad you like my site. Please tell your indie friends and colleagues. They all need simple, clear info.

If it were possible to make all these activities fit into one business then the most tax advantageous structure is to have one of you as the sole proprietor employer and the other as the employee.

If you cannot have your wife's ceramics fit into what you do then you need two sole proprietorships. And then, depending on the subject of the book, one of you would be the employee of the other. Let's say your book were about ceramics and you were helping your wife with the tech part then you would be her employee. This would be done by setting up a payroll with all attendant forms and filings. You might want to read these posts for more info on husband/wife businesses -- husband-wife business .

Sorry, don't know what the heck you mean when you say that you "setup an LLC to run my business expenses through." An LLC is a legal entity not a tax structure. And no business entity is set up to run expenses through. I strongly urge you to read my most recent issue of Ways through the Maze. This month's column is "LLC? Incorporate?" Check it out at Maze archives here.

Best,
June

Childcare is not a business expense.

Hello June -

I started a home business 1 1/2 years ago in Forest Park, IL. I hand paint wood items for kids rooms (plaques, frames, etc...)

I was wondering if I can deduct my babysitting expenses? I spent approx. $1200 last year for a babysitter to watch my son while I worked.

I just found your website. I plan to go pick up your book this week!

Kelly
Forest Park, IL


Dear Kelly,

Babysitting cannot be deducted as a business expense.

You may be eligible for a childcare tax credit if the following two conditions apply:

-- You have a profit from your indie business or you have earned income from a job. If you are married then your spouse must also have earned income.

-- Your sitter or daycare must be legitimate. If it's a service or school you will need an employer identification number. If you pay a babysitter then you must have a social security number for your sitter and the sitter must claim the income.

If you are a budding indie then you will find my book, Self-employed Tax Solutions useful. The least expensive place to purchase it is right here.

Best,
June