BED AND BREAKFAST: A HOME-STYLE BUSINESS

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We simply recorded our guest income in an appointment book under that specific day, and later—at the end of each month—transferred those figures, along with all our itemized expenses, to the income tax record book. Happily enough, we found—once we got our business underway—that the expenses weren't great. As you'd imagine, some of our cash outlay took the form of the normal costs of running a household .

. . which were marginally increased by serving bed-and-breakfast guests. In order to determine what percentage of our home maintenance costs to deduct as B & B business expenses, my wife and I estimated—figuring from autumn to autumn—the total guest-days we anticipated for the first year at 200 (which would be equivalent to one person staying for 200 days or one couple visiting 100 days).

After further rough calculations, we planned to deduct 25% (which we later reduced when the actual number of guest-days fell short of our prediction) of the cost of household cleaners, paper supplies, bedding, garbage pickup, electricity, fuel oil, and insurance on the house. (Our telephone was rarely used for business reasons, so we excluded its cost from our deductions.) We didn't attempt to claim depreciation on our house, either . . . although if a profit had remained after subtracting that—as well as our other expenses—from our business income, it would have been perfectly legitimate to do so.

(It is true, however, that if a dwelling is depreciated, for such purposes, the process places limits on capital gains benefits ifthat house is sold and a new home is purchased.) My spouse and I also calculated $2.00 as our average cost per day to feed each guest. This included a large country breakfast (although that meal can be simple "continental" fare, perhaps juice and rolls) plus refreshments in the afternoon or evening.

Our other expenses included the cost of advertising in nearby suburban newspapers (because we eventually decided to promote our B & B biz ourselves, to augment the efforts of the services we'd joined) . . . money spent on postage, stationery, and a self-designed brochure . . . and the cost of operating a car on B & B errands (we deducted a flat 20¢ per mile whenever we used our 1978 Buick for business purposes)

BUDGET BREAKDOWN

Our endeavor grossed $1,750 during the first year . . . a figure which reflected the income from 100 actual guest-days. Our expenses for that period totaled $1,100 . . . although that sum included part of the cost of two room air conditioners (depreciated over five years), a house sign for the main road, and about $300 spent on promotional materials. The remainder went for food ($200), travel ($180), electricity and fuel oil ($175), insurance ($90), and garbage disposal ($18). We figure that had we reached our initial estimate of 200 guestdays, we would have doubled our income to $3,500 while increasing our expenses by only about $400. Of course, since we achieved only 50% of our yearly goal, we deducted only 12,5010 of our household expenses (rather than the 25% we'd originally calculated). However, if our second year is as good as we anticipate, the 25% rule of thumb can be applied.

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