Here are more questions and answers from my webinars “What the New Tax Law Means for Family Child Care” where I discussed the significant tax changes coming in 2018. I’d previously written an article highlighting these changes.
Many other questions about record keeping and taxes were asked during these webinars. I’m posting the questions and my answers in this article and several upcoming articles so that everyone can learn from them.
Q: I had to repair a third of my driveway in 2017 and it cost $1,400. Is this a land improvement or a repair?
A: It’s a repair since it cost less than $2,500. Deduct your time-space % of this in one year.
Q: Is my monthly rental cost for my apartment a child care expense?
A: Yes! Apply your time-space % to the cost.
Q: I bought a fence in 2017 for my child care business, but I started my business in January 2018. Is the cost of the fence a 2018 deduction?
A: Since your business didn’t start until 2018, you can’t claim any business expenses in 2017. Claim this expense on your 2018 tax return.
Q: Is there anything special needed if I claimed miles for a vehicle I sold?
A: Nothing other than records showing how many miles your drove and the total number of miles you drove. If you used the standard mileage rate to claim vehicle expenses, there is nothing else to do. If you used the actual expenses method and bought another vehicle you must do some calculations to figure out how much of the new vehicle you can depreciate. See my 2017 Family Child Care Tax Workbook and Organizer for details.
Q: How can I deduct expenses for a business training conference if the conference is on Saturday and I drive there on Friday and return on Sunday?
A: You can claim the miles/plane/train, etc costs as long as the primary purpose of the trip was for your business. Assuming you spent at least 4 hours on Saturday at the conference, that represents one business day. The Friday and Sunday travel days are also considered business days, so you can deduct the transportation costs. You can also deduct hotel costs, conference fees, and a food per diem based on the federal rate for that city.
Q: Can I deduct the cost of going to a movie with another provider after a training an entertainment expense I can deduct?
A: Nope. This is considered a personal expense because going to a move is not “ordinary and necessary” for your business.
Q: I live on a military base in military housing. Can I deduct part of the military housing allowance we receive as “rent”? How about utilities? Can I calculate my time-space % the same as if we lived off base and what expenses can I deduct using my time-space %?
A: Since the housing allowance is not income, expenses covered by the housing allowance are not a deduction. If you are paying for utilities or other expenses (furniture, home repairs, home improvements, etc.) out of your pocket, you can deduct the business portion of these expenses. Yes, calculate your time-space % in the same was as if you lived off base.
Q: If we refinance our home can we deduct that?
A: You can continue to deduct your time-space % of your mortgage interest. Points paid must be spread over the life of the new loan. Other closing costs are not deductible.
Q: How are moving expenses associated with moving daycare items during a military move calculated?
A: For non-military families, moving expenses for 2017 are only deductible if the move is closely related to your business and you move at least 50 miles from your home. After 2017 moving expenses are not deductible. For military families, there are special rules. See IRS Publication 521 Moving Expenses.
New 20% Pass Through Deduction
A new rule for 2018 allows providers to escape from paying federal income taxes on 20% of their business profit. See my article on this.
Q: Does this rule apply if it lowers my tax bracket?
A: Yes. Another new tax rule for 2018 lowers the federal tax brackets, but this doesn’t affect your ability to use the 20% pass through deduction. So, applying the 20% rule could also lower your tax bracket!
Q: Does this rule mean my adjusted gross income would be 20% less?
A: No, using this rule does not affect your adjusted gross income. It only affects your business profit that is subject to federal income taxes.
Q: Is this rule automatic or can we choose not to use it?
A: Good question! I don’t know the answer and haven’t seen anything that addresses this. I’ll post about this when I learn more.
Q: Is the pass through for all businesses?
A: It’s for all businesses except C Corporations.
Q: Can I use this rule regardless of my family’s income?
A: You can’t use this rule if your family’s income is over $415,000 if your are married or $207,500 if you are single.
Tom Copeland – www.tomcopelandblog.com
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