Questions and Answers About Deductions, Time-Space% and Food Program
"I had to replace my driveway. Can I deduct this?"
"May I deduct items I purchased before my business began?"
"Do I include my garage in my Time-Space Percentage?"
These are some of the questions I heard during a recent series of webinars sponsored by the Iowa Child Care Resource & Referral. See my answers to these questions and more.
Deductions
Q: May I deduct items I purchased before my business began, such as a swing set? Even if I bought it 10 years ago?
A: Yes! You can use the Start-Up Rule.
Q: Can I deduct a new furnace in one year?
A: Probably not. A new furnace is considered a home improvement that must be depreciated over 39 years. There are two exceptions. If you use the furnace more than 50% of the time for your business or if you are eligible for the Safe Harbor for Small Taxpayers Rule, you can deduct the business portion in one year.
Q: I’m finishing off our upstairs that I will use to do record keeping and store extra toys. Can I deduct the time-space % of the cost of this work?
A: Yes. If it costs less than $2,500 deduct it in one year using the $2,500 rule. If it costs more than that and is considered a home improvement, then follow the advice in my previous answer. If it's not a home improvement, use the 100% bonus rule and deduct it in one year.
Q: How do I deduct the toys I bought at a garage sale because I couldn’t afford new toys when my business began?
A: You can deduct expenses (new or used) for your business even if you don't have a receipt. Take a picture of these items. Write a note to yourself describing where and when you bought it and how much it cost.
Q: Can I deduct the cost of a new roof if my insurance paid for it?
A: No. You can't deduct any of the expense that is paid for by your insurance policy. If you paid for a deductible or other out of pocket expenses, you can deduct the business portion of these costs.
Q: Can I deduct the cost of maintenance on my vehicle?
A: Only if you use the actual expenses method of claiming car expenses. If you use the standard mileage rate, you can't deduct maintenance costs.
Q: If I depreciate home improvements, what happens when I sell our home?
A: You will not have to pay back any of this depreciation you claimed and you won't owe any extra taxes. If the profit on the sale of your home is less than $250,000 if you are single, or $500,000 if you are married, then it won't matter if you depreciated your home improvements. If you profit was higher, claiming home improvement will reduce your profit, which is a good thing.
Q: I had to replace my driveway because of all the traffic. Can I deduct this?
A: Yes! Treat a driveway as a land improvement. If it cost less than $2,500, deduct the business portion using the $2,500 rule. If it cost more than $2,500, use the 100% bonus depreciation rule and deduct it in one year.
Q: I’m building a new house and the basement will be exclusively used for my business. How do I deduct these costs?
A: Separate out the cost of the basement and depreciate 100% of this cost over 39 years. Depreciate the rest of the cost of the new home over 39 years after applying your time-space percentage.
Q: I bought a nap mat but it didn’t last all year. Can I still deduct it?
A: Yes! Any item that wears out before the end of the year, regardless of its cost, can be deducted in one year, after applying your business use percentage.
Q: May I claim car expenses if I don’t transport children?
A: Yes! You can claim any trip in which the "primary purpose" of the trip was for your business. This can include trips to the bank, library, training workshops, grocery stores, and so on.
Time-Space Percentage
Q: When you are tracking two months of hours you work in your home when children are not present, does it have to be the first and last months of the year?
A: No. All providers want to keep track of hours they spend in their home doing business activities when children are not present. Ideally, you want to track this carefully for two months each year. The two months don't have to be any particular month.
Q: Can I count the outdoor square feet of my fenced in yard as part of my time-space %?
A: No. Only count space that is part of the structure of your home (including a deck, but not a patio) and separate structures such as a garage.
Q: Do I include my garage in my time-space % if I use it for a play area?
A: Yes. Always count your garage (whether detached or not) as part of the total square footage of your home. If you use it for a play area or store items such as a lawn mower, snowblower, garden items, garbage can, and so on, you can count the space as regularly used as part of your time-space % calculation.
Food Program
Q: The CACFP reimburses me for breakfast and a morning snack. If I serve an afternoon snack I can deduct all three? Or, can I deduct four servings a day?
A: If you use the standard meal allowance method to claim food expenses, you can deduct up to one breakfast, one lunch, one supper and three snacks per day per child, if you serve that many.
Q: May I deduct a percentage of the cost of all the meals/snacks I serve based on my food receipts?
A: Yes, you can use this method instead of using the standard meal allowance method. But, if you do so, you must save food receipts for all business and personal food expenses. See my Family Child Care Record Keeping Guide for a discussion of how to determine the business portion of your food receipts.
Q: May I count a sippy cup of milk for a one year old as a snack?
A: Yes. There are no IRS rules that describe what is a snack or meal.Tom Copeland - www.tomcopelandblog.com
Image credit: https://people.com/human-interest/kentuck-father-son-dead-carbon-monoxide-garage/
For more information about what you can deduct in your business and how to calculate your Time-Space Percentage and food expenses, see my book, Family Child Care Record Keeping Guide.
