If Licensing Rules Require It - Deduct It!
What do an egress window, gun safe, dog fence, and yard fence have in common?
They are all items that many state child care licensing rules require family child care providers to install to keep children safe.
And, because of this, 100% of the cost of such items may be deducted for your business.
Sometimes tax preparers resist allowing providers to deduct such items because they believe they are personal expenses. (What other home-based business could deduct a gun safe!)
But, providers can deduct all "ordinary and necessary" business expenses under the IRS Tax Code Section 162(a). Ordinary and necessary means useful, helpful, appropriate, or common in that particular business. Importantly, necessary doesn't mean absolutely necessary or indispensable.
So, a provider who buys a gun safe because her licensor tells her she must, can consider it an ordinary and necessary expenses for her business.
When your licensor tells you to purchase something to comply with your state's child care licensing rules, ask her to put it in writing and add it to your tax records. Keep a copy of your state licensing rules on file as well.
I'd also recommend deducting 100% of the cost of items that you are required to purchase to comply with child care rules. Such items can also include smoke detectors, fire extinguishers, fireplace screens, child locks, and so on.
If an item costs less than $2,500, deduct it on Schedule C.
If an item costs more than $2,500, you can use deduct it in one year on Form 4562.
Under new IRS rules, it's not yet clear to me how to treat an egress window. Under the old rules, you would treat this as a home improvement and depreciate it over 39 years. Under the new rules, it seems to appear that you can treat this as a repair/improvement and deduct it in one year. But, I haven't seen specific enough directions to feel comfortable recommend doing this. When I get further information, I'll write about it.
Update: I should have addressed the issue of deducting a phone line when licensing requires one for your business. The IRS adopted a rule many year ago denying a deduction for the first phone line into your home. The first phone line can be a land line or cell phone number. It makes sense that providers should be able to deduct a phone line required for their business, but they can't.
If you have more than one phone line, you can determine which one is the first phone line (non-deductible), and deduct the business portion of a second or third phone line (use your time-space % or an actual business use percent).
Tom Copeland - www.tomcopelandblog.com
Image credit: https://www.pinterest.com/pin/643170390511886345/
