Where Does it Go? A List of Expense Categories
“What expense category should I put ________ under,” is a common question I get from family child care providers around the country.
Providers worry about this when they are trying to enter expenses into software such as KidKare, Quicken or when they are trying to fill out their own tax return, or when they are trying to organize their records before giving them to their tax preparer.
Here’s the overriding rule to remember: It doesn’t matter what expense category you put an item that you have purchased!
All of your expenses will eventually end up on IRS Form 1040 Schedule C and then get added together. So, no matter what line on Schedule C it eventually ends up on, it won’t make any difference with how much tax you will pay.
List of Expense Categories
To help providers who want some guidance, here’s a suggested list of the expense categories you can use to organize your records. I’ve organized them by the tax form they will initially be entered on and in the order that they appear on these tax forms.If you use this list as your guide, it will make it much easier for you, or your tax preparer, to transfer your expenses onto the tax forms.
Schedule C Expenses
Advertising
Car/truck expenses
Contract labor (only put an expense here for someone who did not help you care for children or did, but who was in the business of providing substitute child care)
Business liability insurance
Credit card interest
Legal/professional services (lawyer, tax preparer fees)
Office expense
Rent of equipment (not a car)
Repairs/maintenance of items not attached to your home
Supplies
Taxes/licenses (license fees, personal property tax on your equipment, employee payroll taxes)
Travel/meals (costs to attend a conference overnight)
Wages (for employees, not contract labor)
Food
Household items
Cleaning supplies
Activity supplies
Toys
(Note: the last five categories I created to account for other expenses that don’t easily fit into the other Schedule C categories. These expenses can be entered on the back of Schedule C, under “Other Expenses.”
Mortgage interest
Real estate taxes
House insurance
House rent
House repairs/maintenance
Utilities
Other house expenses
House depreciation
Office equipment (computers, printers, fax, copiers, etc.)
Furniture/appliances/equipment
Fence/driveway/patio
Home improvements
Home
(Note: Items that individually cost less than $2,500 should be put on Schedule C and not be depreciated on Form 4562. For example, if you spend less than $2,500 on a computer or furniture or appliances, put them under “Other Expenses” on Schedule C.
Also, if you bought any item after September 27, 2017 you can deduct the business portion in one year - no depreciation! This is part of the new tax law (100% bonus depreciation rule). Put such expenses on Schedule C under "Other Expenses."
The purchase of a home or a home addition does not qualify for this rule.
Further Comments
In my book Family Child Care Record Keeping Guide, I list over 1,000 allowable business deductions. I’ve listed each deduction under one of the specific expense categories listed above. The book has an alphabetical index of all the expenses so it’s easy to see what category each expense falls under.
The expense categories I’ve chosen for the 1,000 deductions are a suggestion. You don’t need to follow what’s in my book. You can create your own categories and put them on one of the lines on the back of Schedule C. It’s up to you. Tax preparers may have their own categories they want you to use.
If you use the KidKare (formerly Minute Menu Kids Pro) software, it lists the expense categories as they appear on your tax forms and it uses my five additional categories. You can also create five new categories of your own.
If you use the Redleaf Calendar-Keeper, it contains two pages each month to enter your expenses. The expense categories are shown in the order that they appear on Schedule C and also include my five additional categories.
Tom Copeland – www.tomcopelandblog.com
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