Where Does it Go? A List of Expense Categories

“What expense category should I put ________ under,” is a common question I get from family child care providers around the country.

Providers worry about this when they are trying to enter expenses into software such as KidKare Quicken or when they are trying to fill out their own tax return, or when they are trying to organize their records before giving them to their tax preparer.

Here’s the overriding rule to remember: It doesn’t matter what expense category you put an item that you have purchased!

All of your expenses will eventually end up on IRS Form 1040 Schedule C and then get added together. So, no matter what line on Schedule C it eventually ends up on, it won’t make any difference with how much tax you will pay.

List of Expense Categories

To help providers who want some guidance, here’s a suggested list of the expense categories you can use to organize your records. I’ve organized them by the tax form they will initially be entered on and in the order that they appear on these tax forms.

If you use this list as your guide, it will make it much easier for you, or your tax preparer, to transfer your expenses onto the tax forms.

Schedule C Expenses

Advertising

Car/truck expenses

Contract labor (only put an expense here for someone who did not help you care for children or did, but who was in the business of providing substitute child care)

Business liability insurance

Credit card interest

Legal/professional services (lawyer, tax preparer fees)

Office expense

Rent of equipment (not a car)

Repairs/maintenance of items not attached to your home

Supplies

Taxes/licenses (license fees, personal property tax on your equipment, employee payroll taxes)

Travel/meals (costs to attend a conference overnight)

Wages (for employees, not contract labor)

Food

Household items

Cleaning supplies

Activity supplies

Toys

(Note: the last five categories I created to account for other expenses that don’t easily fit into the other Schedule C categories. These expenses can be entered on the back of Schedule C, under “Other Expenses.”

Form 8829

Mortgage interest

Real estate taxes

House insurance

House rent

House repairs/maintenance

Utilities

Other house expenses

House depreciation

Form 4562

Office equipment (computers, printers, fax, copiers, etc.)

Furniture/appliances/equipment

Fence/driveway/patio

Home improvements

Home

(Note: Items that individually cost less than $2,500 should be put on Schedule C and not be depreciated on Form 4562. For example, if you spend less than $2,500 on a computer or furniture or appliances, put them under “Other Expenses” on Schedule C. See my article, “Where Do I Report Expenses Below $2,500 on My Tax Return?”)

Further Comments

In my book Family Child Care Record Keeping Guide, I list over 1,000 allowable business deductions. I’ve listed each deduction under one of the specific expense categories listed above. The book has an alphabetical index of all the expenses so it’s easy to see what category each expense falls under.

Record Keeping small

The expense categories I’ve chosen for the 1,000 deductions are a suggestion. You don’t need to follow what’s in my book. You can create your own categories and put them on one of the lines on the back of Schedule C. It’s up to you. Tax preparers may have their own categories they want you to use.

If you use the KidKare (formerly Minute Menu Kids Pro) software, it lists the expense categories as they appear on your tax forms and it uses my five additional categories. You can also create five new categories of your own.

If you use the Redleaf Calendar-Keeper, it contains two pages each month to enter your expenses. The expense categories are shown in the order that they appear on Schedule C and also include my five additional categories.

I’ve written an earlier article on “How to Choose an Expense Category For Items You Purchase.”

Tom Copeland – www.tomcopelandblog.com

Image credit: https://www.flickr.com/photos/rohdesign/


Categories: Deductions, Record Keeping & Taxes

5 replies

  1. So if we are doing home improvements do we put everything we purchase for that (nails, screws, tools, etc) under the home improvement category? Or would they go separately under a different category? Also, if the cupboards and things like that were under $2,500 would they still go under the home improvement category and be depreciated?

    • When you do a home improvement you must lump all expenses associated with the home improvement together and treat it as one expense. This would include adding nails, screws, etc. However, if the total cost is less than $2,500 you don’t have to depreciate it as a home improvement – it can be deducted in one year as a repair.

  2. What if I do yard improvement? I have a little incline where I have my play area. I would like to level it a bit somehow so it is not as steep and then fence it. Is this a tax deduction?

    • If it costs less than $2,500 deduct the cost in one year as a repair. If it costs more than $2,500 treat it as a land improvement and depreciate over 15 years, using the bonus depreciation rule.