There are two reasons why every family child care provider should do so.
First, there are thousands of dollars worth of tax deductions sitting in your family child care home, waiting for you to report them on your tax return.
Second, your inventory will be extremely valuable when making an insurance claim if your property is ever damaged or destroyed in a fire, tornado, hurricane, flood, or if your home is burglarized.
The picture above is of a family child care provider’s kitchen damaged by a grease fire.
You are entitled to deduct household items you use in your business.
Such household items include your washer, dryer, refrigerator, stove, television, beds, tables, chairs, lawn mower and snow blower. In addition to furniture and appliances, you can also include rugs, lamps, bedding, silverware, pots and pans, curtains, towels, tools, and so on.
Anything that you owned before you went into business that is now being used in your business can be claimed as a business expense by depreciating it. Anything purchased after your business began that costs less than $200 may be deducted in one year. Items costing more than $200 may have to be depreciated. See my article about a new “$500 rule.”
Conduct an inventory of all household items by writing them down. This job can be made easier by using my Family Child Care Inventory-Keeper. It is an easy-to-use log that enables you to track your household items by room.
Since you probably don’t have receipts of these items, take pictures to support your deduction.
Take enough pictures in each room so that you can identify individual items.
Estimate each item’s value as of the day you first started using it in your business. Use thrift store or garage sale prices. You don’t need a receipt to depreciate these items.
This may seem like a lot of work, but it is well worth your time.
Let’s say the value of all your household items was $10,000. If your Time-Space Percentage was 40%, you can depreciate $4,000 ($10,000 x 40%) as a business expense over 7 years. This represents approximately $570 in tax deductions each year for 7 years.
See also my article, “Depreciating the Contents of Your Home: The Right Way and the Wrong Way.”
Many child care providers fail to take advantage of the tax rules that allow you to depreciate household items they owned before their business began. Turn over your inventory list to your tax preparer and have him/her calculate the depreciation deduction. If you do your own taxes, use my annual Family Child Care Tax Workbook and Organizer to calculate your deduction.
You want a photographic record of everything in your home so that you can make a claim for damage or loss with your insurance company.
Take pictures of everything in each room in your home (including your basement and garage). Open desk and dresser drawers, kitchen cabinets and take pictures of everything inside (particularly of valuable items such as jewelry). Take pictures of your closets, your backyard (patio chairs, grill, swing sets, etc.), and your laundry room.
Put these pictures on a flash drive and put them in a safe deposit box. (The cost of the flashdrive and part of the cost of the safe deposit box can be a business expense!)
It’s a good idea to conduct a written inventory and take pictures of everything in your home once a year.
Why? Doing so will capture new items you purchased.
In addition, it will help you identify items that you no longer have. This can help you if you were depreciating an item that is thrown away or destroyed. In this situation you can deduct the remaining amount of depreciation at the end of the year.
For example: Let’s say you were depreciating a $1,000 couch (and your Time-Space % was 40%) over seven years and it is wrecked after 4 years. You would still have about $125 in depreciation (for years 5-7) that you can claim in the year it was wrecked.
You’ve probably heard before the importance of conducting an inventory of household items and taking pictures of everything in your home. You know you should do it. Make this year the year you do!
Note: As I write this article, I haven’t done an inventory of my home for insurance purposes! I’ve promised myself to do this by the end of 2014!
Tom Copeland – www.tomcopelandblog.com
See my Family Child Care Inventory-Keeper to help you track your inventory.