Ask Tom

Question: Can I deduct the cost of a cleaning lady?

Yes. If she only cleans areas used exclusively for your business you can deduct 100% of the cost. If she cleans areas also used by your family, deduct the time-space % of the cost. The cleaning lady should be reporting this as income on her taxes. But, even if she doesn’t you can still deduct it. Keep a written record of when and how much you paid her.

If she is cleaning when children are not in your home, you can count part or all of the time she spends cleaning in your time-space % calculation.

Question: Is my clothing deductible?

Nope. Clothing is only deductible as a business expense if it meets the standard of being a uniform. A uniform is something that is not suitable to be worn in public. Examples include a police or fire person’s uniform.

The only item of clothing that could meet this definition in family child care would be scrubs or an apron.

Therefore, even clothing you buy specifically for your business and use exclusively for your business is not deductible because it suitable to wear them in public.

If you have a shirt or sweater with your business name or log on it, you can deduct this as advertising, not clothing!

Question: Is Equipment I Receive as a Grant Taxable Income?

Yes! Whether you get cash or equipment (toys, supplies, furniture, etc.) from a grant, you must report this as taxable income.

When you spend the cash on something for your business you can deduct the business portion as a business expense. If it’s used by your family and your business, deduct your Time-Space % of the cost.

When you receive equipment from a grant, deduct the business portion of the value of the equipment as a business expense.

If you spend the cash or use the equipment 100% for your business, there will be no tax consequence to you. For example, if you got a $1,000 outdoor play equipment and you used it 100% for your business, you would report $1,000 as income and $1,000 as a business expense.

Question: May I deduct baby wipes and diapers for my own child during business hours?

No. The IRS will consider this as a personal, non-deductible, expense. This is similar to not being able to deduct food for your own child. However, I believe you can deduct activity supplies for your own child during business hours. This is because your child is interacting with the other children and enhancing your program while doing so. My thinking is that you would not have spent money on activity supplies for your own children if you were not in business. There is nothing in the IRS regulations that address this point.

Question: “Should I bring up past documented issues with parents during the termination process?”

Maybe. Ideally, there was a process leading up to the termination of a parent. You should be discussing the issues as they came up and tell the parent, “If we can’t resolve this problem it will lead to your termination.” I also think it’s a good idea to give parents a final chance: “If this happens again, I will have to terminate our contract.” In other words, you should be communicating all along that the consequence of a parent not following your rule is termination. You don’t want the termination to be a surprise.

When you have been communicating all along, then I don’t think it is wise to say anything more when you do terminate. This is because it will only bring up bad feelings and the parent may want to argue with you. Sometimes it may not be possible to terminate after a process of trying to resolve a problem. For example, the parent threatens you or your staff with violence. In this case immediate termination is warranted.

Question: Do my estimated taxes paid on January 15, 2016 apply to my 2015 taxes?

Yes. The deadlines for filing quarterly estimated tax payments are April 15th, June 15th, September 15th and January 15th. If you paid estimated taxes on January 15, 2016 these amounts are applied to the taxes you owe for 2015.

Question: Can I deduct an expense from last year on this year’s tax return?

No. Expenses must be claimed in the year they are incurred or paid for. So, if you bought something on a credit card on December 31st, that’s a December expense because that’s the date you incurred the debt, not in January when you paid it.

You can amend your tax return (use Form 1040X) to go back and claim the expense for last year and get a refund.

If you didn’t start your business until this year, you can claim expenses from last year on this year’s tax return. See my article on this: “How to Handle Expenses Before Your Business Begins: The Startup Rule.”

Question: Can I deduct the cost of the extended warranty on my new appliances?

Yes! Multiply the cost of the extended warranty by your time-space % if you use the appliances for your business and your family. If it’s only used by your business, deduct 100% of the cost. Separate the cost of the warranty from the cost of the appliance when determining if you qualify to use the $2,500 rule that allows you to deduct in one year items that cost less than $2,500. See my article on this rule.

Question: Is there an upper limit on how high my Time-Space % should be?

No. There is no IRS rule that limits how high your time-space percentage can be. I have successfully defended providers in IRS audits who claimed a 98% time-space percentage when caring for children 24 hours a day, seven days a week. I have also successfully defended providers who did not care for children 24 hours a day, but had several rooms used exclusively for their business and had a time-space percentage over 65%.

Don’t hesitate to claim all the hours you work in your home, particularly when children are not present. Keep at least two months of daily records showing your work hours (cleaning, activity preparation, record keeping, etc.) when children are not present in your home.

Question: May I deduct the food cost if my daycare helper and I eat a meal at a restaurant?

Yes, you can deduct 50% of the cost of the food for a business meal. You should keep the receipt, write down the name of the person you had the meal with and write down what you talked about. The primary purpose of the meal needs to be business related, so describe what you talked about in a paragraph.

Here’s an article I wrote about this: http://tomcopelandblog.com/when-can-your-deduct-a-business-meal