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QUESTION:
I am retirering in two month and will make around 40,000.00/year in pension benefits. I want to do some tutoring to increase my income. I will charge $30.00to $35.00/ hre . My question is: Is there a significant tax advantage to declare it as a small business or not declare it. I will make around $500.00/month = $5000.00/year. I will use the new extension of my house ( 65 ft)plus toilet, living-room for parents to sit etc. 10% of my house. How much money can I expect to receive back or am I going to receive any money at all?...
Hope I explain myself well enough if not please email back.
XXXXXXXXX
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david ingram replies;
Unless you make a profit, expenses for an office or studio in your home are not deductible. In other words, you cn only use home office / studio expenses to reduce your income to zero, you can NOT deduct home office expenses against other earnings or against your pension income.
You can not deduct part of your living room or the bathroom if they are not exclusive to the business. In other words, to deduct your living room, you would have to devote it to your parents and students and not use it for family get togethers or entertaining anyone who was not a student.
I will compare it to myself. One room downstairs is dedicated to an office but I answer 19 out of 20 questions in my living room or dining room. Both rooms have a networked computer in them but the basic use of the room is still as a family room and I choose to work here because I am in the same room with my kids (17 and 12) who also read my answers and tell me when they do not understand the answer. I figure that if a 12 and 17 year old can get it, the rest of my audience should be able to as well.
My mother taught singing and piano in the middle of the living room so I have an idea of what you will be doing.
So what will your deduction be? Your home is likely paid for so if I could assume that you are paying $3,000 in property taxes and $3,000 for heat and light, you have a $300 deduction at 5% or a $600 deduction at 10%. Even if you have a $10,000 mortgage interest bill, it would only add another $500 or $1,000 to the deduction.
So, If you make $5,000 and get to deduct the $1,600, you will still be paying tax of about 30% of your $3,500 profit.
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