If a business fails to show a profit within a three year period it is
considered a hobby and you cannot claim any business expenses on your
tax return. A home based business has allowable deductions such as a
percentage of your mortgage, taxes, insurance, utilities, etc. plus
depreciation on the value of your home. This is done as follows: you
must have one or more rooms devoted specifically for your business use
and you calculate the percentage of square footage they are of the
entire house. Let's say for example that it's 20 percent. You then take
20% of all the above expenses to claim as a deduction in your tax
return. However, "what the government giveth the government taketh
away" applies here. If, in the future, you decide to stop the business.
sell your house then you must pay tax on the profit you made and that
tax will be the same percentage you claimed as a business expense in
prior years; 20 percent in this case.
Another thing to consider is that your business may have to be handicap
accessible. Check with your County Clerk's office on that. It is
required in New York and I don't know if it's a national law or local
one.
