Can someone tell me more about the outside property? Say friends or family come by to visit in our common area, park out back and walk up the sidewalk through the back yard to enter our common area. Am I now not allowed to claim the area of the sidewalk? the entire back yard? Where is the line drawn?.
I think there are probably certain types of properties where outdoor space would be considered 'off limits' to use by family & friends (this does include you, BTW). However, for family to come and visit you at the B&B and to use the outside spaces that
you are not claiming to be part of the B&B is ok.
Example of this...if you have a pool and you allow guests to use that pool, promote that pool on your website, insure that pool against guest claims, have the pool guy paid for by the biz, etc and then claim that pool and all its expenses as part of your biz, then, yes, it's part of your biz and off limits to the family.
The yard? No, it don't think so but I'm not a lawyer an accountant or an IRS auditor.
So, the whole situation with the house comes down to this...do you have personal space that is NOT part of the business? Personal space that you pay all the expenses for? ie- you pay for the electricity, the heat, the hot water, etc out of your own pocket? Space where guests are not allowed? If you don't have anything other than say a bedroom and a bathroom, you really need to go over this with an accountant because you can't even make dinner for yourself in the kitchen if you claim that space is part of the inn.
Essentially, YOU are going to be drawing the line. THIS is mine and I pay for everything that gets used in it out of my own money that has been taxed by the IRS and THAT is the B&B where everything is paid for by the business and is a legitimate expense on my tax return.
That's your space, you do with it what you want. If the business is paying for the space- all the expenses of that space are deducted from your taxes- then that is business space and if your family wants to come and stay there, they have to pay. Or else it is NOT business space, it is personal space. (This is the big red flag the IRS has with home offices...does only business take place in there or do all the guys come over and watch the game on Sunday in front of the big screen TV (that the business bought and paid for)? Do your kids do their homework in there because that's where the computer is, do they use the biz computer that you just wrote off?)
All the IRS really cares about is that you are not writing off legitimate, taxable income as a business expense tax and then using that same 'income' for your own personal use. (Don't drink the juice or eat the leftovers, either, if the expense of buying those items was charged to the business.)
But, you also have to use common sense. Is your yard going to regularly be 'rented' by guests? If not, then it's just your yard. If your grandkids run into the inn and use a guest bathroom rather than peeing on the carpet in the front hallway, it's hard to picture the IRS claiming you are not keeping your biz and personal life separate. However, if those same grandkids SLEEP in those guest rooms and you feed them food the B&B bought, then yes, the IRS has a right to expect you won't be claiming those things as business expenses or write-offs.
So, charge them. Explain it and charge family a modest fee. (And why big hotels can comp rooms to the owners and their friends and family we still haven't figured out.)
And get an accountant who can explain the difference between being a sole proprietor and being a corporation and where the line is blurry and where it is very clear. We have a couple of corporations. We pay our own utilities and we have renters insurance for our personal space because we are 'tenants' and the B&B insurance only covers the building and the inn's property, not our junk. Essentially, we rent our apartment from the corporation that owns the property.
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