Tax write-offs for your new business

By Maya Payne Smart, contributing writer


(CNNMoney.com) -- Question: I am still in school and plan to open my own dance studio. If I teach dance for a small additional income or teach for free, would I be able to write off workshops on my taxes as a part of my business -- and would I break even? -Katie, Las Cruces, N.M.

Answer: By definition, your business breaks even when your sales equal your costs. So if you're offering free courses to promote paid programs down the line, you may operate at a loss for some time. This is normal -- it typically takes years for new businesses to become profitable.

The good news is that you can write off your expenses, whether the business breaks even or not, as long as you begin with profitability as your main objective.

"There has to be a business intent initially for it to be a deduction," says Pam Burns, a CPA in Gainesville, Fla. "There have to be business records, bank accounts, incorporation, good recordkeeping, advertising."

These activities help separate you from the ranks of hobbyists, who are subject to different tax rules. Professionalism counts.

"If she does lease space, open up bank accounts or incorporate, these are all indications of going into business," says Brad Hall, managing director of Hall & Company Certified Public Accountants and Consultants in Irvine, Calif. "Then any expenses she has, whether it's advertising or a free lesson, would be deductible."

You can take a broad view of your business expenses. Hall's dance studio clients deduct a range of costs including travel, phone charges, payments to other instructors, rent and studio insurance. All of the business supplies, from computers and stationery to leotards and dance shoes, can be written off as well.

You can even deduct educational expenses, including tuition, books and supplies that maintain skills needed in your present work or that are required by law to keep your present salary, status or job.

However, you cannot deduct the cost of education that is needed to meet the educational requirements to teach dance. In short: "If you are establishing a credential for yourself, that is not deductible," Hall says. "Only the amounts you spend in continuing or keeping your credentials active would be deductible." To top of page

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