Questions and Answers About the New 2018 Tax Changes - Part II
Can I deduct the business portion of my landline phone?
Can I use my business checking account to pay my personal credit card bill?
Do I have to start withdrawing money from my IRA at age 59 ½ or can I wait until I’m age 70?
These are a few of the many questions I received while conducting several webinars on the new 2018 tax changes that affect family child care providers. Here's Part I of the questions and my answers which covered home improvements, car expenses and food deductions.
Deductions
Q: Can I deduct a discount I gave to a family last year on my taxes?
A: No. You can’t deduct money you didn’t receive from parents. This includes discounts, scholarships, or money the parent owed you when she left.
Q: Can I deduct a lawn mower?
A: Yes, since it’s an “ordinary and necessary” expense for your business. Apply your Time-Space Percentage to this expense.
Q: Is my vacation a tax deduction?
A: No. I wish it was!
Q: Is a new computer 100% deductible?
A: Only if you use it 100% of the time for your business. If not, apply your Time-Space Percentage.
Q: Can I deduct the business portion of my landline phone?
A: You can’t deduct the first phone line into your home, whether it’s a landline or cell phone. You can deduct the business portion of a second or third phone line that is used in your business (cell phone or landline).
Q: Are solar panels 100% deductible?
A: No. Something is 100% deductible only if it is never usedpersonally.
Q: If I purchased a $3,000 laptop for my business, is it 100% deductible or do I have to depreciate it?
A: Anything you buy can deducted in one year except for a home, home improvement or home addition. You can deduct 100% of the laptop in one year as long as you use it exclusively for your business.
Q: Can I deduct a massage?
A: Nope. It’s personal, even though it might help you getready to care for the children.
Q: I live in one state and my CPA lives in another. Can I deduct the mileage trip to meet with him?
A: If the primary purpose of the trip (more than half the reason) is to consult about your business, then you can deduct the mileage. Under new rules for 2018 you can no longer deduct the cost of tax preparation fees as an itemized expense to prepare your personal tax forms. You can still deduct the cost of preparing your business tax forms. Ask your tax preparer to separate out their fee.
Incorporation
Q: I run my daycare out of a rental property. Should I be an LLC or an S Corporation? Putting myself on payroll and not having to pay estimated taxes is appealing to me.
A: You still have to file estimated taxes as a single person LLC (if you are not married or your husband doesn’t withhold enough) or as an S Corporation. In general, I don’t recommend incorporating your business. It’s easier to keep records as a corporation if you are not doing child care in your home. But, consult with an attorney and tax preparer before incorporating so you understand all the consequences.
Other
Q: When selling my home, how long must I wait before I can sell it without having to pay lots of taxes?
A: There used to be a rule that said you would have to pay capital gains taxes on the profit on the sale of your home unless you were out of business at least two of the last five years before you sold your home. That rule is gone. Now, you can avoid paying capital gains tax on the profit on the sale of your home if the profit is less than $250,000 if you are single or$500,000 if you are married. However, you must always pay taxes on the house depreciation you claimed, or were entitled to claim, since 1997.
Q: My husband is now retired. How can be deduct Medicare premiums?
A: You can only claim uninsured medical expenses, including health insurance premiums and Medicare premiums as a business expense if you are not eligible to be covered by an employer health insurance plan. Since you aren’t eligible to get health insurance through your husband’s employer because he is retired, you can deduct 100% of your family’s medical insurance premiums, including Medicare on Form 1040, Schedule 1. This is a new Schedule for 2018.
Q: I paid over $8,000 in health insurance premiums. Is that a business or personal expense?
A: It’s not a business expense unless you establish a Health Reimbursement Account. If you are not eligible to receive health insurance through an employer, it can be deducted as a personal expense on Form 1040,Schedule 1, line 29.
Q: My mother is 83 years old and still is very active helping me in my business. Can I pay her?
A: Yes, you can. If you want to deduct this as a businessexpense you will have to treat her as an employee. This includes withholdingSocial Security/Medicare taxes, withholding state and federal income taxes,paying state and federal unemployment taxes, and perhaps purchasing workerscompensation insurance. She will have to report this as income.
Q: What is the best business liability insurance I should have for my business?
A: See my article, “Ten Questions to Ask Before Purchasing Business Liability Insurance.”
Q: Can I use my business checking account to pay my personal credit card bill?
A: Yes. It doesn’t matter if you pay for business orpersonal expenses out of a business or personal checking account.
Q: Can I claim the $500 child tax credit for my 23 year old college student who has her own apartment?
A: No. To claim this credit the child must have lived with you for more than half the year and you provide more than half of their support.
Q: If we take the new higher standard deduction on our personal taxes, do we need save any receipts?
A: No.
Q: If I receive a cash bonus and/or gift cards from parents, are they taxable income?
A: If it’s a gift, it’s not taxable income. If it’s a bonus, it is taxable income.
Q: I moved my daycare to another home that I rent. I continue to store things in my home (computer, etc.). Can I deduct the time-space% of the house expenses (internet, etc.) in the home I live in?
A: No. Since your business is in the rental home, you can’tdeduct expenses related to the home you live in. You can deduct items in yourhome such as a computer, desk, file cabinets, etc.
Q: My CPA has me pay my husband to work for me so we can deduct medical expenses as a business deduction. He wouldn’t let me deduct food expenses for him because he said it would raise a red flag because my profit wouldn’t support more deductions. Does this make sense?
A: You are entitled to deduct food expenses for your husband if you are paying him to care for children before and after the meal. However, as a general rule, you can only deduct expenses that are “ordinary and necessary” for your business. It’s possible that the amount you paid your husband plus the food cost would be excessive as compared to your profit. Certainly I would not deduct his food expenses if doing so would create a loss. Exactly how much you could deduct for your husband’s food as a “reasonable” amount is debatable.
Q: How much is the Saver’s Credit for 2018?
A: You are eligible for this credit if you are single and your profit is less than $31,500. If you are married and your profit and your husband’s gross income is less than $63,000, you are eligible. Depending on how low your family income is you can claim a 10%, 20% or 50% tax credit on up to $2,000 contribution to any IRA.
Q: Do I have to start withdrawing money from my IRA at age 59 ½ or can I wait until I’m age 70?
A: You can start withdrawing money from your IRA as early as age 59 ½ if you want. But you must start taking money out after your reach age 70. This is called the Required Minimum Distribution that involves taking money out according to a formula set by the IRS.
Tom Copeland - www.tomcopelandblog.com
Image credit: https://www.clipartlogo.com/istock/q-letter-colorful-icon-flat-style-design-1830397.html
For details, see my Family Child Care Tax Workbook and Organizer.
