“Is lawn care deductible?”
“Am I required to take a paycheck for myself?”
“I’m remodeling my bathroom. How do I deduct it?”
These are some of the questions asked by family child care providers that I answered during a recent webinar “Mastering Record Keeping and Taxes” sponsored by Child Care Resource and Referral of NW Iowa.
This is Part II from this webinar.
Q: Are gift cards received from parents reportable as taxable income?
A: If the gift cards are given as a birthday or Christmas present, they are not taxable income.
Q: If I buy your Family Child Care Tax Companion for my tax preparer, is that tax deductible?
A: Yes. It’s available from www.redleafpress.org.
Q: Why am I allowed to deduct a tooth brush and tooth paste?
A: You are if these are used by the children in your care. They are not deductible if only used by your family.
Q: I had storm damage to my home this year. A tree fell on my home. Can I claim my insurance deductible as an expense? Do I need to claim the insurance payment as income?
A: Yes, you can use the insurance deductible that you paid as a casualty loss and deduct a portion of this as a business expense. Insurance payments you receive are not taxable income.
Q: How would I deduct replacing the driveway? We have concrete now and are replacing it with concrete.
A: Replacing a driveway would be considered a land improvement that is depreciated over 15 years. If you simply repaired the driveway you could treat it as a repair and deduct the time-space % in one year. However, if you depreciate it you can take advantage of the 50% bonus depreciation rule and claim half of the business portion in one year.
Q: We are planning to remodel our bathroom. Since this is part of the daycare home, do I use my time-space percentage of the cost as a deduction?
A: Yes. Remodeling is considered a home improvement that must be depreciated over 39 years. But, you can use the 50% bonus depreciation rule and claim half the business portion in the first year. Also, you may be eligible for the Safe Harbor for Small Taxpayers rule that allows you to deduct home improvements in one year if you qualify. See my article on this Safe Harbor rule.
Q: I had to borrow money to put new siding on my house to become state registered. How can I deduct this when I’m paying it off over a few years?
A: You can start depreciating the cost of the new siding (use your time-space %) in the year its installed, even if you don’t pay it off for a number of years. If you are paying interest on the loan, you can deduct the time-space% of the cost of the interest each year.
Q: I just bought a new oven as my old oven stopped working. Is this a deduction?
A: Yes. If it cost less than $2,500 you can deduct the time-space% of the cost in one year.
Q: How much can I claim for an expense if I go for a day care training out of my state: hours, airplane ticket, hotel, meals, etc.
A: You can’t count time spent away from your home, even if it’s for business purposes. If the primary purpose of the trip is business you can count 100% of the plane ticket, hotel and other related expenses. You can either claim half of the food receipts or half of the federal per diem rate for that city.
Q: Would it be better to buy new furniture this year or next year?
A: It an individual item costs less than $2,500 it doesn’t matter which year you buy it in. If it costs more than $2,500 then it’s better to purchase it this year because of the 50% bonus depreciation rule. In 2018 it will drop to a 40% bonus depreciation.
Q: Is lawn care deductible?
A: You can deduct the time-space% of lawn care. I wouldn’t count any of the time spent mowing your lawn because you aren’t mowing it more because you are in business. You could count the time picking up outside after the children. Only count time for activities you would not be doing if you weren’t in business.
Q: How do I deduct the cost of new carpet ($3,200) that is going to be used for both business and personal use?
A: If the new carpet represents less than half the square footage of the home, multiply by it your time-space% and deduct in one year as a repair. See my article on the expanded definition of what is a repair.
Q: I’m taking college classes on early child care education. Can I count the time I spend?
A: You can never count the time spent away from your home attending college. If you already have a post secondary degree, you can deduct the time you spend at home doing work for these classes. If you are getting your first post secondary degree, you can’t count any of the costs associated with the classes nor the time spent in your home on homework. See my article on this.
Q: I’m newly married, would you recommend I file my taxes as married filing single or jointly?
A: You are almost always better off filing jointly. However, you should check with a tax preparer to see what the best answer is for your specific situation.
Q: What do you recommend to use to scan receipts?
A: I don’t recommend any particular scanner. The one I hear the most about is NeatReceipts, available from Amazon.
Q: Can we use a receipt scanner and store receipts that way?
A: Yes. It’s a good idea. If you scan a receipt you are not required to save the paper receipt, although I recommend that you do so.
Q: Can you take more money from a parent than what you charge? Say you charge $25 a day and they want to give you $50 a day. Can you legally take the money?
A: Yes, take the money. It’s legal to do so. It’s taxable income.
Q: Can you get an identification number if you are running a daycare as an individual?
A: Yes. You can get an EIN (Employer Identification Number) from the IRS for free.
Q: Am I required to take a paycheck for myself?
A: No. You don’t earn a paycheck as a self employed provider. Any money you earn is yours and you can take it out of your personal or business checkbook at any time. You can’t deduct as an expense what you take out for yourself.
Tom Copeland – www.tomcopelandblog.com
Image credit: https://iowaccrr.org/
For further information, see my book Family Child Care Record Keeping Guide.