Closing Down Your Family Child Care Business
There will come a day when you close down your business. When that day comes, here are some tax and non-tax issues to consider:
Tax Issues
Claim all your business income and expenses for the last year you were in business.
When you calculate your Time-Space % for your final year, adjust the number of hours in the year on Form 8829 Expenses for Business Use of Your Home if you closed down before the end of the year. You can only claim house expenses for the months you were in business.
If you have been depreciating items used in your business, you normally will only get a half year's worth of depreciation in the year you go out of business, no matter what month you close down.
The exception is for depreciation on your home and home improvements. For these items, you claim the last year of depreciation based on the month you close down.
If before you go out of business you replace items you have been depreciating (carpet, vinyl or wood floors, furniture, appliances, etc.), you will be entitled to deduct all of the remaining unclaimed depreciation on these items on your last business tax forms.
For example, if you replace the carpeting in your playroom before you go out of business, and it's in the fourth year of depreciation, you can deduct the fourth-seventh years of depreciation. If you wait until after you go out of business to replace such items, you will not be able to deduct any of the remaining unclaimed depreciation.
After going out of business, the only thing you need to remember about taxes is that you will owe some taxes when you sell your home. Whether you sell your home immediately after going out of business, or years later, you will owe taxes on the depreciation you claimed on your home since May, 1997.You will owe this tax whether or not you actually claimed depreciation on your home. Therefore, when you do start to make plans to sell your home, contact a tax professional to help you deal with the tax consequences of this action. See my article: "Will You Owe Taxes When You Sell Your Home?"
You don't have to announce to the IRS (or your state Department of Revenue) that you are going out of business. You simply don't file any of the business tax forms (Form 8829, Schedule C, Form 4562, etc.) in the year after you go out of business.
Non-Tax Issues
Contact your child care licensor, your local Child Care Resource and Referral agency and your family child care association so they can update their records.
Contact your insurance agent for your home and car. You may be entitled to a reduced insurance rate depending on your circumstances.
Contact your business liability insurance agent. You may get a refund for cancelling your insurance policy before the end of the year. Save a copy of your insurance policy until the youngest child in your program (at the time you closed your business) reaches age 21. Before then, it may be possible for a child to sue you for an injury that occurred while in your care.
Notify your parents, in writing, that you are closing your business. Keep copies of this notice for your records. If your contract requires you to give parents a two-week notice, do so.
But, if you tell parents months in advance that you are closing your business, some parents may want to terminate earlier. Take this into consideration when deciding when to inform parents of your decision.
If you are closing down your business, I hope you take a moment to appreciate how all of your hard work over the years has had a positive impact on so many children. Congratulations!
Tom Copeland - www.tomcopelandblog.com
Image credit: https://www.flickr.com/photos/discoveroregon/35054581062
For more information about the tax consequence of closing your business, see my Family Child Care Tax Workbook and Organizer.
