# Opening small home based business in California - need help **URL:** \ **Category:** In My Humble Opinion\ **Created:** [May 22, 2019, 9:02pm UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378 "2019-05-22T21:02:05Z")\ **Posts on this page:** 16\ **Page:** 1
**Author:** ![Typo\_Negative](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/typo_negative/32/484_2.png) [@Typo\_Negative](https://boards.straightdope.com/u/Typo_Negative)\ **Post date:** [May 22, 2019, 9:02pm UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/1 "2019-05-22T21:02:05Z")
My wife has a hobby of obtaining vintage furniture and decor and refurbishing. She sells the pieces she cannot incorporate into our home. She sells them in a facebook group . She wants to make this an actual business in Sacramento Ca. We have questions, because we are novices and not all that bright. 1. Can you deduct losses from such a business (vehicle, house work space) if you do not have a business licence? 2. Do we need to form an LLC? 3. Has anyone used this? [Start a Limited Liability Company | Online LLC Formation | Nolo](https://store.nolo.com/products/form-your-california-llc.html) Is it worth it? More questions will probably follow. Any info will be helpful. ---
**Author:** ![Procrustus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/procrustus/32/2994_2.png) [@Procrustus](https://boards.straightdope.com/u/Procrustus)\ **Post date:** [May 22, 2019, 9:06pm UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/2 "2019-05-22T21:06:24Z")
I’m not your lawyer, and certainly not your accountant. 1. Business licenses are not difficult to get, and you may want to get one. I don’t think it changes what you can and cannot deduct, but it might make it easier if questioned down the road. 2. You don’t need to. Primary reason is to protect people from liability. (That’s why it’s called “limited liability company”) Her business isn’t that risky. But she should have insurance that covers her while she’s driving for business purposes and if any has a business reason to be on your premises. (there may be tax advantages to a LLC, but that’s outside my knowledge area) 3. No experience. ---
**Author:** ![TSBG](https://avatars.discourse-cdn.com/v4/letter/t/77aa72/32.png) [@TSBG](https://boards.straightdope.com/u/TSBG)\ **Post date:** [May 22, 2019, 10:29pm UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/3 "2019-05-22T22:29:13Z")
You can use Nolo if it makes you feel more comfortable, but you can also just do it yourself and save a little money: > **[Filing Tips :: California Secretary of State](https://www.sos.ca.gov/business-programs/business-entities/filing-tips)** > > Learn business entity filing tips drafted to assist with meeting minimum filing requirements of the California California Corporations Code here. But as **Procrustus** says, you should talk to an accountant about whether it’s necessary or desirable. You should also talk to an attorney versed in such matters to find out whether and how incorporation can help (or hinder) you. ---
**Author:** ![thelurkinghorror](https://avatars.discourse-cdn.com/v4/letter/t/7c8e57/32.png) [@thelurkinghorror](https://boards.straightdope.com/u/thelurkinghorror)\ **Post date:** [May 23, 2019, 3:16am UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/4 "2019-05-23T03:16:21Z")
Business licenses are via the state/municipality, and have nothing to do with IRS rules. If you earn $X, they will want you to get a license. The main Federal tax rule is that you can deduct meaningful expenses, but [if the job is considered a hobby](https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses), you cannot deduct more than your earnings. You should not **need** a LLC, whether it is a good idea is a different manner. They’re not the most common choice for small businesses. No clue, but these businesses generally charge for doing legwork that you can do yourself. Therefore it is likely a helpful but not necessary service. ---
**Author:** ![Twoflower](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/twoflower/32/22_2.png) [@Twoflower](https://boards.straightdope.com/u/Twoflower)\ **Post date:** [May 23, 2019, 4:47am UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/5 "2019-05-23T04:47:52Z")
The City of Sacramento expects you to get a business license. Plus, there’s an extra application for a home-based business. Not hard; the home-based permit just limits having employees who need to park & the amount of client traffic. Reporting your business income and expenses goes on your 1040 schedule C & doesn’t involve the presence or lack of a business license. Sacramento does charge an annual business tax based on gross income. IIRC, I sent them about $100/yr. Unless you’re doing business in your own name, you need to legalize the business name somehow. File a DBA (doing business as), or form an LLC. As TSBG said, it’s not a hard DIY to file an LLC. the State of California charges $800/yr for the privilege of being an LLC. Tax wise, a single-member LLC just reports on your personal 1040. There are IRS rules about home office space that should be looked at closely. Mainly, if you have space in your home that is exclusively used for business, you can deduct a proportion of your home expenses based on what percentage of your floor space is used for business. ---
**Author:** ![drachillix](https://avatars.discourse-cdn.com/v4/letter/d/48db29/32.png) [@drachillix](https://boards.straightdope.com/u/drachillix)\ **Post date:** [May 23, 2019, 4:10pm UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/7 "2019-05-23T16:10:37Z")
As others have mentioned, deductability is not determined by business licence. As someone who has owned an incorporated business, and went back to sole prop, I would skip on the LLC. At the scale she is operating, its more paperwork and potential fines for failure to file/late paperwork, etc. Dont leave sole prop until you need to. Even then, a few pieces of furniture a month, a business licence may prove more annoying than its worth. What kind of volume is she expecting? Right now I am doing $5-7K/mo in contract IT stuff as just my name, no business licence, no official anything. The biggest thing where a formal structure helps is selling it as you can get all the bills/accounts and such in the name of the biz so it makes it easy to transfer without making a million new accounts for everything. ---
**Author:** ![thelurkinghorror](https://avatars.discourse-cdn.com/v4/letter/t/7c8e57/32.png) [@thelurkinghorror](https://boards.straightdope.com/u/thelurkinghorror)\ **Post date:** [May 23, 2019, 5:57pm UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/8 "2019-05-23T17:57:11Z")
Be careful with home office deductions, as it’s a big audit flag. Do nothing wrong and you wouldn’t have to worry, just FYI. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [May 23, 2019, 6:05pm UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/9 "2019-05-23T18:05:04Z")
> [@Typo\_Negative](#): > > 1. Can you deduct losses from such a business (vehicle, house work space) if you do not have a business licence? You can deduct costs from driving for business purposes at the standard IRS mileage rate. Note that if you want to take a home office deduction, the space that you use must be used _exclusively_ for the business, which is often a fairly high bar to meet, since most space in a home is fairly multi-use. Ever do personal paperwork at that desk? Ever have a houseguest stay in the spare bedroom/office? Ever store personal belongings in the furniture storage area? And so on. ---
**Author:** ![TSBG](https://avatars.discourse-cdn.com/v4/letter/t/77aa72/32.png) [@TSBG](https://boards.straightdope.com/u/TSBG)\ **Post date:** [May 23, 2019, 7:54pm UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/10 "2019-05-23T19:54:01Z")
Again, you should check with an accountant. But while the home-office deduction can be problematic on an individual return, using a corp to pay a portion of rent and utilities is less so, I believe. There are other benefits to having an incorporated business, like car expenses that are more fully payable through the business, and possibly buying health insurance if that’s desirable or necessary. ---
**Author:** ![thelurkinghorror](https://avatars.discourse-cdn.com/v4/letter/t/7c8e57/32.png) [@thelurkinghorror](https://boards.straightdope.com/u/thelurkinghorror)\ **Post date:** [May 23, 2019, 9:34pm UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/11 "2019-05-23T21:34:48Z")
> [@iamthewalrus\_3](#): > > You can deduct costs from driving for business purposes at the standard IRS mileage rate. > > Note that if you want to take a home office deduction, the space that you use must be used _exclusively_ for the business, which is often a fairly high bar to meet, since most space in a home is fairly multi-use. Ever do personal paperwork at that desk? Ever have a houseguest stay in the spare bedroom/office? Ever store personal belongings in the furniture storage area? And so on. You, unless they changed it recently, put a percentage of your home floor space as home office use. So you can certainly use the room for other things, but correct that claiming that the entire space is office space is suspect. Like if you claim that a computer is used 100% for work - not likely, and easy for them to doubt even if true. When you start getting into this stuff, hiring an accountant is a very good idea. You can deduct that on your return, but only the portion of their time dedicated to business, not the whole amount, which likely includes your W-2 taxes. ---
**Author:** ![Chronos](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chronos/32/134_2.png) [@Chronos](https://boards.straightdope.com/u/Chronos)\ **Post date:** [May 24, 2019, 12:04am UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/12 "2019-05-24T00:04:12Z")
[Moderating] This sounds like legal advice, which belongs in IMHO. Moving. ---
**Author:** ![Twoflower](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/twoflower/32/22_2.png) [@Twoflower](https://boards.straightdope.com/u/Twoflower)\ **Post date:** [May 24, 2019, 12:23am UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/13 "2019-05-24T00:23:28Z")
I’ve had a home office for the last 15 years (8 of those were in Sacramento). It takes up 10% of the floor space of my home, so 10% of the mortgage, 10% of the utilities, 10% of a re-roofing, etc. all went on my taxes as a business expense. I had my office painted, and that full amount was a business expense. I’ve never been audited, but of course YMMV. Also, I agree that it doesn’t sound like that business plan warrants forming an LLC. ---
**Author:** ![drachillix](https://avatars.discourse-cdn.com/v4/letter/d/48db29/32.png) [@drachillix](https://boards.straightdope.com/u/drachillix)\ **Post date:** [June 4, 2019, 4:24pm UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/14 "2019-06-04T16:24:02Z")
> [@Twoflower](#): > > I’ve had a home office for the last 15 years (8 of those were in Sacramento). It takes up 10% of the floor space of my home, so 10% of the mortgage, 10% of the utilities, 10% of a re-roofing, etc. all went on my taxes as a business expense. I had my office painted, and that full amount was a business expense. I’ve never been audited, but of course YMMV. > > Also, I agree that it doesn’t sound like that business plan warrants forming an LLC. The mortgage expense could bite you in the butt later. IIRC the interest portion of the mortgage may be deductible but the principal probably is not. Also you cannot double dip mortgage interest deduction and a home office expense deduction on the same mortgage. ---
**Author:** ![Twoflower](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/twoflower/32/22_2.png) [@Twoflower](https://boards.straightdope.com/u/Twoflower)\ **Post date:** [June 4, 2019, 7:03pm UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/15 "2019-06-04T19:03:05Z")
You’re right, it’s mortgage interest, not the full payment. And Turbo Tax knew to avoid double dipping. ---
**Author:** ![Alley\_Dweller](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/alley_dweller/32/430_2.png) [@Alley\_Dweller](https://boards.straightdope.com/u/Alley_Dweller)\ **Post date:** [June 4, 2019, 7:58pm UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/16 "2019-06-04T19:58:05Z")
> [@thelurkinghorror](#): > > The main Federal tax rule is that you can deduct meaningful expenses, but [if the job is considered a hobby](https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses), you cannot deduct more than your earnings. Actually, since the Tax Cuts and Jobs Act went into effect in 2018, [you cannot deduct hobby expenses](https://sfmagazine.com/post-entry/july-2018-hobby-gross-income-and-expenses-after-the-tcja/) (except for cost of goods) at all. The TCJA eliminated all deductions that were formerly subject to the 2% floor. ---
**Author:** ![drachillix](https://avatars.discourse-cdn.com/v4/letter/d/48db29/32.png) [@drachillix](https://boards.straightdope.com/u/drachillix)\ **Post date:** [July 31, 2019, 3:59am UTC](https://boards.straightdope.com/t/opening-small-home-based-business-in-california-need-help/834378/17 "2019-07-31T03:59:27Z")
> [@TSBG](#): > > Again, you should check with an accountant. But while the home-office deduction can be problematic on an individual return, using a corp to pay a portion of rent and utilities is less so, I believe. > > There are other benefits to having an incorporated business, like car expenses that are more fully payable through the business, and possibly buying health insurance if that’s desirable or necessary. i know the threads a little older but I somehow glassed over this. im pretty sure that an incorporated business has to rent from you. draw up a lease, etc. My mom mentioned this specifically when I went corp. claiming deductions that the corp did not actually pay will bite you in the butt too if audited. your rent and bills are your personal expenses. you would need to have something like a lease drawn up for $x/month for X space including utilities/internet. Make sure it is a “fair market” price. you probably will not get away with paying $2000/mo to TSBC properties for 1 bedroom in a $800/mo 2 bedroom apartmemt. corporations have their own money. mixing expenses can get very messy in a hurry.