Yesterday I discussed what to do when you decide to end your family child care business (that did not involve taxes).
Here is a checklist of tax issues to consider when ending your business.
1) Claim all your business income and expenses for the months you were in business when you file your IRS Form 1040 Schedule C at tax time.
2) When you file your IRS Form 8829 Expenses for Business Use of Your Home, calculate your Time-Space Percentage based on the number of months in the year you were in business. In most cases this will mean your Time-Space Percentage will not change. But, the amount of expenses you claim will be lower because you will only be claiming them for the months you were in business.
3) In the year you go out of business, the rules change for items you have been depreciating (home, home improvements, furniture, appliances, etc.). You are entitled to claim only part of a normal year’s worth of depreciation. For personal property items (furniture, appliances, computer, TV, DVD player, etc.), you will be able to deduct one-half of a normal year’s worth of depreciation. For your home and home improvements, your depreciation deduction will be based on the month you quit your business. For details, see my annual Family Child Care Tax Workbook and Organizer.