Before signing your tax return and sending it to the IRS, use this checklist to spot potential mistakes on your IRS Form 8829 Expenses for Business Use of Your Home.
[ ] Line 1: Is the number on this line less than line 2? If so, it means you didn’t use all the rooms in your home on a regular basis for your business. Is this true? You can use a room as regular use if you use it two-three times per week for business purposes.
If you didn’t use all your rooms regularly for your business, be sure that you have included all possible areas on lines 1 and 2, including your basement, porch, detached garage, and deck. Don’t count outdoor space such as a back yard or patio.
[ ] Line 5: If you were not in business for all of 2016, cross out the number typed on this line (8,784) and enter the number of hours there were in that part of the year you were in business.
For example, if you started your business on April 1, 2016, there were 6,600 hours (275 days x 24 hours each day) in the year between April 1st and December 31st. Enter 6,600 on line 5. Then only enter your house expenses that you incurred after April 1st on this form.
[ ] Line 7: Is the amount on this line at least 30%? This is your Time-Space percentage. If you care for children ten hours a day, five days a week, and use all the rooms in your home regularly for your business, your Time-Space percentage will be 30%. If you conduct other business activities in your home after children are gone (cleaning, record keeping, activity planning, time on the Internet, etc.) your percentage is likely to be higher. In addition, if you have exclusive-use rooms, this will also increase this percentage.
[ ] Did you use one or more rooms in your home exclusively for your business? If so, follow the instructions to this form and you will claim a much higher Time-Space percentage. See also my article: “How to Claim the Exclusive Use Rule.”
[ ] Did you enter most of your expenses on this form in column (b)? This column is for expenses that are used by your business and your family. Only expenses that are 100% business should go in column (a).
[ ] Did you claim 100% of your property tax and mortgage interest on Schedule A and also claim the Time-Space percentage of these expenses on Form 8829? If so, this is incorrect. Make sure that you have only claimed the personal portion of these expenses on Schedule A. Schedule A is used if you itemize your taxes, rather than using the standard deduction on Form 1040.
Here’s an example: If your property tax and mortgage interest totaled $8,000 and your Time-Space percentage was 35%, you would claim $2,800 of these expenses on Form 8829 ($8,000 x 35%) and the remaining amount ($5,200) on Schedule A.
[ ] Did you claim insurance, repairs, and utilities (including cable television) on both Schedule C and Form 8829? Don’t count these expenses twice. This can be confusing because these appear as expense categories on both forms. You would only claim these expenses directly onto Schedule C if you did child care in a building that was not your home.
[ ] Line 41 and 29: Did you claim depreciation deductions for your home on these lines? All family child care providers should depreciate their home (unless your business shows a loss) and you want to take advantage of this significant deduction. You are always better off financially if you do depreciate your home and your taxes will be the same when you sell your home, whether or not you do depreciate it. So, take the deduction!
Tom Copeland – www.tomcopelandblog.com
Image credit: www.wibc.com
For more information about how to correctly fill out Form 8829, see my 2016 Family Child Care Tax Workbook and Organizer.