A family child care provider writes: > Although I did not receive my childcare license until this year, I purchased many items and supplies last year. I don't want to miss out on these deductions. I also earned a little money caring for two children while their mom attended college courses. ... We need to determine if your child care business start date was last year or this year. It sounds like it was last year, if that's when you started caring for those two kids. You don't need a license in California when caring for the children of only one family. And the license issue is sort of immaterial as far as the IRS is concerned anyway. Even unlicensed child care providers must report their business income and expenses on their annual income tax return. If a required license is not obtained or at least applied for, however, no home expense deduction will be allowed. Your start date is probably the date you started caring for those children. Going by IRS rules, a child care provider's business start date will generally be either the day she started caring for children or the day she was ready to care for children and was promoting her business and looking for children to enroll in her program. If you spent any money on child care business-related expenses before your start date, these are considered "start-up costs" or "start-up expenses." They are deductible, but they must be listed separately on your tax return. Start-up expenses are deductible on the first tax return filed for your business. Even expenses paid in a previous year can be included. You have to make a "special election" to take this deduction and it allows you to deduct up to $5,000 in startup costs. (Start-up costs over $5,000 are deductible over a 15 year period.) Start-up expenses should be combined into different categories, such as supplies, license fees, education, etc. You will have similar, separate categories for the business expenses paid for on or after your start date. Here is how I ask my clients to categorize their expenses in the first year: 1) Give me a list of any home improvements or items purchased that cost $100 or more. Include a description, the cost, the date of purchase for each item listed. For anything purchased before your start date, please also try to estimate the item's resale value as of that date. 2) For all other expenses, separate those paid before your start date from those paid on or after your start date. Then take each group of expenses and separate them into appropriate shared and 100% categories. (Shared expenses are those that have a component of personal use and 100% expenses are those that are purely business use.) In the first year, with the startup costs, this gets pretty crazy. You could have four categories for supplies: startup shared supplies, startup 100% supplies, regular shared supplies and regular 100% supplies! In future years, when start-up expenses aren't an issue, you can cut back to two supplies categories. It's the same situation for many other expenses, such as office expense, repairs, toys, etc. A Special Note Regarding Safety-Related Home Improvements: In certain situations, you may have home costs that would normally be considered shared, but are better treated as 100% business. An example could be the replacement of a fence for safety reasons. I generally treat all safety modifications required by licensing authorities to be 100% business. Improving something around your house for business reasons, however, does not necessarily make it a 100% business expense. For example, redoing your front landscaping to improve the look from the street will not be considered a 100% business expense, even though you wouldn't have done it if not for the business. As you go through listing items in #1 above and categorizing items in #2 above, make a note of anything done for safety or licensing reasons.
Last updated: 3 October 2009
|
