As a family child care provider, your home is your workplace. Hundreds of items all through your residence are used in your business. Furnishings and room decor contribute to the home care environment that parents have chosen for their children.
Doing a household inventory allows you to take a business deduction for furniture, appliances, and other items used in your business. I strongly urge all new child care providers to take such an inventory. Most established providers can also benefit from taking an inventory, as long as your business start date is not too far in the past and you can still remember what you owned at that time.
Items in your inventory can include window coverings, rugs, kitchen utensils/dishes/bakeware, towels, bed linens, toys, play structures, video games, TVs, DVD players, wall decorations, strollers, lamps, musical instruments, pillows, books, lawn mower, tools, etc. The list goes on.
Your deduction is based on the resale value of these items as of your business start date and is calculated using depreciation tables which divide up the deduction over a certain number of years (usually seven). Items purchased after your business start date are depreciated based on their cost, but for items you already owned when you started business, you must estimate what the items could have sold for at a garage sale or on eBay.
See this sample household inventory done by a first year provider for her 2007 taxes. If you have a slow Internet connection, download just the first page. This is a good example of a thorough inventory done using Tom Copeland's Inventory-Keeper. Please note that not all of the items in this sample inventory will be used as a tax deduction. The homeowners took the time to document everything for insurance purposes, as well as for tax purposes. Only items used in the normal course of the child care business will generate a tax deduction, but that includes a lot of household items.
You can document your inventory any way you choose, but using the Inventory-Keeper booklet is a very handy way to go. I especially like how the booklet suggests all kinds of items for each room that you may otherwise overlook. The more items you document, the greater your tax savings.
To give you an idea of what is possible, consider that the sample inventory above generated a list of household items worth a total of about $22,000 as of the provider's business start date. A time/space percentage of 25% would bring her "business basis" for these items to $5,500. This means that if her time/space percentage stays steady at 25%, she will deduct $5,500 in additional business expense over seven years. I would expect a married California provider with a working spouse to save perhaps $2,700 in tax over that time and project a single provider to save perhaps $1,900. Actual tax savings will depend on how much total income is reported on the provider's tax return.
The numbers above show that it's well worth your time to document all of your STUFF. We all have a lot of it and you might as well turn it into a tax deduction! For your efforts you will also create an excellent record for insurance purposes.
Last updated 22 April 2013