In many states family child care providers run their business out of a home they don’t live.
There are a number of reasons why they do this:
* Some don’t want to disrupt the space where their family lives.
* Some can’t get their own homes licensed because of building or fire codes.
* Some find a different location is a better place to attract new clients.
Whatever the reason, how do you claim business expenses when you don’t live in the space you are doing child care?
If you are only using the separate location for business purposes (no personal parties on the weekends!) then you are entitled to deduct 100% of the costs association with the space.
This includes rent, furniture, appliances, renter’s insurance, food, toys, supplies, utilities, and so on. Everything. This is true whether you rent your place of business or own it.
If you are using the separate location for some personal activities, then calculate your actual business use percent of your business expenses.
Claim all of these expenses on IRS Form Schedule C Profit or Loss From Business. Sometimes there can be confusion about what expenses to claim on Schedule C or IRS Form 8829 Expenses for Business Use of Your Home. This is because there are some expenses that appear on both forms (mortgage interest, insurance, rent, repairs and maintenance, taxes and utilities).
If you live in your home where you do child care you must claim your house expenses on Form 8829. These include property tax, mortgage interest, house insurance, utilities, house repairs and home depreciation. You claim your remaining business expenses on Schedule C.
If you don’t live in the home where you do business, you do not fill out Form 8829. Instead, claim everything on Schedule C.
You can claim car expenses when you take trips that are primarily for your business. This includes trips to the grocery store, bank, field trips, and so on. However, if you do child care in a separate home you cannot claim the miles traveled between your home and your place of business. This is considered commuting and it’s not deductible.
If you travel to and from your business location primarily for business purposes you can claim these miles. In the same way you can count trips to and from your home for business purposes.
You cannot claim the Time-Space Percentage of the expenses of the home you live in if you do child care in a different location. But, you can claim expenses for things in the home you live in that you use for your business. Examples are a computer, printer, copier, desk, file cabinet, washer/dryer, etc. For these items, calculate an actual business use percent.
Here’s how to calculate your house expenses when doing child care out of two different homes in one year.
Although we don’t have the final regulations from the IRS on this point, it’s likely that providers who do child care out of a separate home will not be better off using the new IRS safe harbor rule for claiming house expenses.
Tom Copeland – www.tomcopelandblog.com
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