It's Time to Do a Household Inventory
Have you recently conducted a household inventory where you have listed and photographed every item in your home?
There are two reasons why every family child care provider should do so.
First, there are thousands of dollars worth of tax deductions sitting in your family child care home, waiting for you to report them on your tax return.
Second, your inventory will be extremely valuable when making an insurance claim if your property is ever damaged or destroyed in a fire, tornado, hurricane, flood, or if your home is burglarized.
The picture above is of a family child care provider's kitchen damaged by a grease fire.
Business Deductions
You are entitled to deduct household items you use in your business. Such household items include your washer, dryer, refrigerator, stove, television, beds, tables, chairs, lawn mower and snow blower. In addition to furniture and appliances, you can also include rugs, lamps, bedding, silverware, pots and pans, curtains, towels, tools, and so on.
Anything that you owned before you went into business that is now being used in your business can be claimed as a business expense. In addition, you can deduct the business portion of anything purchased after your business began, with the exception of a house, home improvement and home addition.
Conduct an inventory of all household items by writing them down. This job can be made easier by using my Family Child Care Inventory-Keeper. It is an easy-to-use log that enables you to track your household items by room.
Since you probably don't have receipts for these items, take pictures to support your deduction.
Take enough pictures in each room so that you can identify individual items.
Estimate each item's value as of the day you first started using it in your business. Use thrift store or garage sale prices. You don't need a receipt to depreciate these items.
This may seem like a lot of work, but it is well worth your time.
Let's say you started your business this year and the value of all your household items was $10,000. If your Time-Space Percentage was 40%, you can deduct up to $5,000 of such expenses this year. Since $4,000 ($10,000 x 40%) is less than $5,000, you can deduct the entire amount this year.
If you started your business more than two years ago and didn't claim these expenses, you can file IRS Form 3115 and claim the $4,000 on this year's tax return as long as you still own and used the items in your business this year.
See also my article, "Depreciating the Contents of Your Home: The Right Way and the Wrong Way." Many child care providers fail to take advantage of the tax rules that allow you to deduct household items they owned before their business began. Turn over your inventory list to your tax preparer and have him/her calculate this deduction. If you do your own taxes, use my annual Family Child Care Tax Workbook and Organizer to calculate your deduction.
Insurance Protection
You want a photographic record of everything in your home so that you can make a claim for damage or loss with your insurance company. Take pictures of everything in each room in your home (including your basement and garage). Open desk and dresser drawers, kitchen cabinets and take pictures of everything inside (particularly of valuable items such as jewelry). Take pictures of your closets, your backyard (patio chairs, grill, swing sets, etc.), and your laundry room. Put these pictures on a flash drive and put them in a safe deposit box. (The cost of the flash drive and part of the cost of the safe deposit box can be a business expense!)
Conclusion
You've probably heard before the importance of conducting an inventory of household items and taking pictures of everything in your home. You know you should do it. Make this year the year you do!
Note: As I write this article, I haven't done an inventory of my home for insurance purposes! I've promised myself to do this by the end of 2014!
Tom Copeland - www.tomcopelandblog.com
Image credits: www.mummymusingsandmayhem.com,
See my Family Child Care Inventory-Keeper to help you track your inventory.
