Four Tax Questions Answered
The April 15th tax deadline is almost upon us. Here are some tax questions I've received from family child care providers recently:
1) Can I deduct my monthly mortgage payment?
No. You can deduct your mortgage interest on IRS Form 8829 Expenses for Business Use of Your Home, line 10, column b (indirect expense). If your Time-Space Percentage is 35% you would deduct 35% of your mortgage interest on Form 8829 and 65% on Schedule A if you itemize.
You are able to capture the principle payments (that are part of your monthly mortgage payment) when you depreciate your home on Form 8829.
2) Can I deduct 100% of my family child care union dues?
Yes. In some states family child care providers have organized into unions and pay monthly union dues. These expenses can be deducted on IRS Form Schedule C, line 17 Legal and Professional Services. Some child care providers are not a member of a union, but are having "fair share" fees deducted from the payments they receive from the county for caring for children from subsidized families. You cannot deduct these "fair share" fees as a business expense. Instead, you are receiving less income and, as a result, you will pay less in taxes.
3) Can I deduct expenses for lawn maintenance such as a lawn mowing service or landscaping service?Yes. Multiply the cost by your Time-Space Percentage.
4) I bought some clothes (t-shirts, gloves, coats) for my day care children. Can I deduct this?
It depends. If these items are given to the children for them to take home they would be considered "gifts" and are subject to a limitation of $25 per child, per year. There is a difference between a "gift" and an "activity expense."
If these items were purchased for the children but kept in your home so they can be used by other children, then there is no $25 gift limitation and the items could be fully deducted as an activity expense.
Tom Copeland - www.tomcopelandblog.com
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For a list of over 1,000 items that could be deducted in your business, see my Family Child Care Record Keeping Guide.
