Questions and Answers About Deductions - Part II
“Can I only deduct $25 for each child as a gift for the year?”
“Are Girl Scout cookies tax deductible?”
“Can we deduct the cost of groceries being delivered?”
These are some of the many questions I’ve received during my February 10th webinar “How to Save Money on Your 2021 Taxes.” This webinar was sponsored by KidKare.
In this article I answer the many questions asked about deductions during this webinar.
KidKare is a comprehensive record keeping program that includes an accounting section that allows you to keep track of all your income and expenses. You can use it for free during a 30 day trial period. Afterwards it costs $99.00 a year. If you do sign up, please use the referral code 0659. If you do so, this will help support the work I do helping family child care providers be more successful as a business. Get more information about KidKare.
Family child care providers are entitled to deduct all “ordinary and necessary” expenses for their business. Ordinary and necessary means: typical, appropriate, common, helpful or useful. Since a provider’s business is to offer a home learning environment for children, she can deduct the business portion of expenses to clean, repair and maintain her home as a home. This can includes hundreds of household items: furniture, appliances, beds, tables, silverware, lawn mower, patio furniture, snowblower, towels, pictures on the wall, and so on. See my article, “What’s Deductible in a Family Child Care Business?”
My book Family Child Care Record Keeping Guide lists over 1,000 allowable deductions.
Questions and Answers
Other Deductions
Q: We are living in an RV until we can find a place to do child care again. Can I deduct storage fees for our furniture and appliances even though I am not doing child care now?
A: You can deduct the business portion of the storage expenses.
Q: Can I only deduct $25 for each child as a gift for the year?
A: Yes, if it’s a gift. If it’s an activity expense, there is no limit to how much you can spend and deduct. See my article, “The Business Side of Giving Gifts."
Q: Would shared expenses (toys, household items, cleaning supplies, etc.) go on Form 8829 or Schedule C?
A: Schedule C.
Q: Can I deduct my home appliance insurance?
A: Yes.
Q: Can I use my EBT card to buy food. Can I deduct this?
A: Yes.
Q: If I am renting a separate home to do child care, can I deduct the rent or anything else?
A: Yes, you can deduct 100% of expenses associated with doing child care in a home you do not live in. This includes rent, utilities, and everything else.
Q: Can I deduct my cell phone?
A: You must have more than one phone line to deduct your cell phone. The first phone line into your home is not deductible, whether it’s a land line or cell phone. You can then deduct the business portion of a second phone line. See my article, "Is My Telephone Bill Tax Deductible?"
Q: Are Girl Scout cookies tax deductible?
A: Yes, assuming you serve them as a snack to children.
Q: I give many books and toys for fundraisers and conference raffle baskets and such. Can I claim this as an advertising expense?
A: Yes, as long as your name is publicly acknowledged by the organizers of the fundraisers and your name is on the raffle baskets.
Q: I rent and the owner doesn’t want to fix the garden. I paid cash to someone to fix it. How do I create a receipt if it was $800?
A: Create your own written record: “On ________ (date), I paid ________ (name and any other information you have about this person, including address, and contact information) $_____ (amount) to fix the garden.”
Q: Can I deduct my membership fee to Costco, Sam’s Club and AAA?
A: Yes, for a business membership to Costco and Sam’s Club. You could only claim membership in AAA if you used the actual expenses method to claim car expenses.
Q: I had to go out of business in mid 2021. I had business expenses after that: paying painters to turn daycare areas back to personal living space. I had to replace my furnace, air conditioner and water heater. Can I deduct these expenses?
A: No, because they were done after you went out of business.
Q: How do I record credit card expenses? Are they considered an expense when you charge the card or pay the credit card bill?
A: You claim the expense when you submitted your credit card for payment, not when you paid it. You can deduct the business portion of credit card interest.
Q: Can I deduct HOA fees that are used to repair everything to the outside, including gardeners?
A: Yes, apply your time-space%.
Q: I keep receipts but found that looking at my banking and credit card statements for the year easier to claim expenses. Is this a good idea?
A: No. Your bank and credit card statements don’t list what you spent the money on. How can you tell if it’s for baby wipes or shotgun shells? Save all receipts.
Q: I read that certain things shouldn’t be deducted, such as a cosmetic fence because it could cause an audit. True?
A: You can deduct all expenses that are “ordinary and necessary” for your business. If the fence is used to help keep children safe, then it’s ordinary and necessary.
Q: How do you deduct utilities when I haven’t been saving every month’s bills?
A: Contact your utility company to get a copy of your monthly bills, or see if they are listed online on their website.
Q: How to you claim property tax? Do you have to keep the bill or will city hall print something out for you?
A: Multiply your property tax by your time-space% and claim on IRS Form 8829 Expenses for Business Use of Your Home. Keep the bill or get a copy from your city or county.
Q: I work at a different location which is not my home. How do I deduct the dishes, window blinds and so forth?
A: Deduct 100% of the cost, since these items are never used personally.
Q: I have a daycare in a house that I only use for daycare. I have a mortgage on it. I was told that I could only deduct the interest. Is that true?
A: No. You can deduct 100% of all expenses associated with this house.
Q: Can I deduct a new carport?
A: Yes, apply your time-space%. If it costs more than $2,500 depreciate it over 39 years.
Q: Can I deduct COVID test kits?
A: Yes.
Q: If I rent where I live and do childcare, can I deduct some of the rent?
A: Yes, you can deduct your time-space% of the rent.
Q: When I spend money on soap, do I list it as a “supply” or “janitorial”? Which way would carry a higher write off?
A: It doesn’t matter what you call the expense, the tax deduction is the same.
Q: Is the interest I pay on my EIDL loan deductible?
A: Yes.
Q: I purchased a shed to store daycare stuff. How can I deduct the shed?
A: If you used it for business and personal purposes, multiply by your time-space% and deduct in one year. Deduct 100% of the cost if it is never used personally.
Q: Can we deduct the cost of groceries being delivered?
A: Yes. Apply your time-space%.
Q: I have a coffee and tea station set up for existing and new parents. I use it for personal purposes as well. Can I deduct the coffee, machine and supplies?
A: Yes. Apply your time-space% and deduct as a Supply on Schedule C.
Q: I need new furniture because the daycare children damaged the old furniture. Can I deduct this?
A: Yes, apply your time-space% and deduct in one year.
Q: Can I charge rent for the space I use for child care in my home?
A: No. You can’t charge rent to yourself.
Q: Can you deduct repairs/upgrades to your home if the money comes out of my personal account versus my business account?
A: Yes. It doesn’t matter which bank account you pay for business items. This assumes you are a sole proprietor. If you are incorporated you must keep your business and personal expenses separate or you will lose any limited personal liability protection.
Q: If I am not licensed, what can I claim on my taxes?
A: If you are legally exempt from child care licensing you can deduct all the same expenses as a licensed provider. If you are operating illegally, you can claim all expenses except house expenses that are on Form 8829. These include: mortgage interest, property tax, utilities, house insurance, house repairs, and house depreciation.
Q: When I buy something at a garage sale for the daycare, I write it on my calendar what it was and the amount I paid on that date. Is this sufficient?
A: So far, so good. I would also take a picture of the item.
Q: I bought something in the last week of 2020 but the money wasn’t deducted from my account until 2021 when the item was shipped. What year should I claim this deduction?
A: Since you bought it in 2020, it was a 2020 business expense. If you haven’t filed your 2020 taxes, amend your return to claim this expense.
Q: If a child breaks a window or damages my property, can I deduct 100% of the cost?
A: Yes.
Q: Are you saying that anything I buy for my home I can at a minimum deduct my time-space% unless it was used 100% for personal use?
A: Yes.
Q: I remodeled my kitchen in December 2021 and opened my daycare in January 2022. When can I claim this expense?
A: 2022.
Q: I don’t have a mortgage (house is paid off), can I still deduct real estate property taxes?
A: Yes.
Q: Our state requires us to have short nails when working with children. Can we deduct the cost of a basic manicure?
A: No. This is considered too personal.
Q: Can I deduct the cost of installing a camera system around my house?
A: Yes. Deduct 100% of the cost.
Q: Will you keep doing my Family Child Care Tax Workbook after you retire?
A: It will continue to be published and updated by tax professional Bill Porter.
Q: If I buy personal items such as shoes or clothes, what expense category do I put it under?
A: You can’t deduct your shoes or clothes. The only clothing you could deduct would be scrubs or clothing that has a business message on it. If so, deduct it as advertising.
Q: Can my bank statements be used to prove business expenses if my receipts are faded or misplaced?
A: They would be better than nothing. However, you should scan or copy your receipts to ensure they can be read.
Tom Copeland - www.tomcopelandblog.com
Image credit: https://www.littlerockfamily.com/post/96825/where-to-get-girl-scout-cookies-and-how-it-all-got-cooking-in-the-first-place
