End-of-the-Year Tax Savings Tips

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There are several ways a family child care provider can reduce her 2016 taxes before the end of the year.

The goal is to accelerate your deductions into 2016 and delay income until 2017. Here are some ideas:

1) Stock up on business supplies and materials before the end of the year. These can include: arts and crafts supplies, cleaning supplies, kitchen supplies, curriculum materials, and so on.

If you pay by credit card for an item purchased in 2016, it’s considered a 2016 expense, even if you don’t pay the bill until 2017.

2) Ask parents to pay you in 2017 for the last several weeks of December 2016. Money you receive in 2017 for child care delivered in 2016 is reported by you as taxable income on your 2017 tax return, not 2016.

If a parent gives you a check on December 31, 2016, but you don’t deposit it until 2017, it’s still considered income to you in 2016 (the date you received the check).

3) The sooner you make a contribution to an IRA, the more money you will have at retirement. You can set up a Traditional IRA or SEP IRA before April 15, 2017. Any contributions you make to these IRAs before then will reduce your personal taxable income.

If you set up or contribute to a Roth IRA you won’t reduce your taxes this year, but you will save money later when you withdraw the contribution and interest at retirement tax free.

4) If you make contributions to a charitable organization before the end of the year, you may be able to reduce your personal taxable income if you can itemize your taxes.

5) Take advantage of a new IRS rule that allows you to deduct individual items costing less than $2,500 in one year, rather than having to depreciate them. If you use this rule you must attach a statement to your tax return that states that you are electing to use this De Minimus Safe Harbor Election. See my article on this: “Have You Bought Something for Less Than $2,500 This Year?”

6) Take advantage of the newly restored 50% bonus depreciation rule and before the end of 2016 buy furniture, appliances and playground equipment worth more than $2,500 and used less than 50% of the time in your business. Doing so will allow you to deduct half of the normal depreciation in 2016. Note: if you use these items more than 50% of the time in your business in 2016 you can use the Section 179 rule and deduct the entire business portion in 2016.

Follow these simple steps to save a little more money in 2016!

Tom Copeland – www.tomcopelandblog.com

Image credit: https://www.flickr.com/photos/68751915@N05/

For more information about filing your 2016 tax forms, see my book 2016 Family Child Care Tax Workbook and Organizer which will be available in January 2017.



Categories: Deductions, Record Keeping & Taxes

5 replies

  1. Tom,

    I put on a new roof this year. Can I use the 50% rule for this?

    Cathy

  2. Tom,

    Thank you for the follow up. What is the unadjusted basis for your home?

    Cathy

  3. I had to buy a new stove and refrigerator when I moved to my new location, will the cost of those be under the $ 2,500 rule or the 179 rule? Also I needed to make improvements to the back yard in order to comply with licensing and I am guessing that those too are deductible.
    Thank you

    • If any individual item costs less than $2,500 use the $2,500 rule, not the Section 179 rule. That’s because you can only use the Section 179 rule if you use it more than 50% of the time for your business and if you use it less than 50% in later years you will have to pay some of the deduction back. Improvements to your back yard to comply with licensing would be 100% deductible. If less than $2,500 use the $2,500 rule.