Business Property

Exempt

Any property, regardless of value, that is used in a business (i.e., self-employment) is considered business property and is exempt. This includes, but is not limited to:

  • Merchandise inventory (finished goods/materials)
  • Business licenses/permits
  • Tools and equipment (e.g., computers, fax machines)
  • Business bank accounts (e.g., checking, savings, money market)
  • Real estate (e.g., warehouse, offices)
  • Vehicles (if used other than for commuting to and from work)
  • Cash on hand (necessary for the operation of the business).

Property Intended for Self-Employment

A property is exempt if it is necessary:

  • For training which will lead to self-employment, or
  • In preparation for future self-employment.

Nonexempt

Stocks, bonds and other similar items of personal property, including stock in the business, is not considered necessary for the business.

Rules for Business Property

The following rules apply to business property:

  • It is not countable property regardless of how ownership was acquired.
  • There is no utilization requirement in order for the business property to be exempt. This means that business property does not have to earn an annual income of at least 6% of it’s net market value.
  • Personal involvement in the day-to-day operation of a business is not necessary for the property to be exempt as business property.

Period of Exemption

Business property is exempt as follows:

Maximum Period of Exemption

Criteria

Indefinite

As long as the property is currently used for business.

One year

When the business is not in operation and the client can provide evidence that both of the following conditions are met:

  • The business is not in operation due to reasons beyond the owner’s control, and
  • The business will be resumed within one year from the date the business operation stopped.

Two years

When the business operation stopped due to the client’s illness or disability and the client can provide verification of:

  • The illness or disability, or
  • A plan to resume operation within two years from the date the business operation stopped.

Verifications

In order for any property to be exempt as business property, the client must provide verification that a:

  • Business or self-employment does exist, or
  • Property is intended to be used for self-employment.

The following Internal Revenue Service (IRS) tax forms are acceptable verifications:

Verifications for Exempt Business Property

IRS Form  Description
Schedule C Profit or Loss from Business or Profession
Schedule SE  Computation of Social Security for Self-Employment
Schedule F Farm Income and Expenses
Form 4562 Depreciation and Amortization
Form 1065 U.S. Partnership Return of Income

If the business tax returns are not available, the client may provide other documentation that is sufficient to verify the existence of a business, or a plan of intended business. This includes but is not limited to the following:

  • Business receipts, checks, invoices, sales slips or bank statements
  • Business flyers
  • Commercial advertisements (i.e., newspaper, yellow pages).

Related Topics

Personal Property