Questions and Answers About Your Tax Return
Here are some questions I've answered for family child care providers over the past week:
Q: If I use KidKare software, what reports should I print out and give to my tax preparer?
A: Schedule C Worksheet; Schedule C Detailed Worksheet; Form 8829 Detailed Worksheet; Standard Meal Allowance; Vehicle Mileage; Depreciation Worksheet; Time-Space % Calculation
Q: If I refinance my home or pay off my mortgage, how will this affect my home depreciation?
A: Not at all. Once you start depreciating your home, continue doing so until the full depreciation period has expired (39 years). A higher or lower Time-Space Percentage will increase or decrease your home depreciation deduction. If you go out of business before the end of 39 years you won't be able to claim the remaining years of depreciation.
Q: If I lease my car, can I use the standard mileage rate to claim car expenses?
A: Yes. You can choose between using the standard mileage rate or the actual expenses method. If you choose the actual expenses method you can deduct the business portion of the annual lease, gas, car insurance, car wash, and any other actual expenses.
Q: If I show a loss for my business, should I consider using the Simplified Method instead of claiming Form 8829 expenses?
A: Yes! When I've written about the Simplified Method of claiming house expenses, I've stated that the vast majority of family child care providers should not use this method. This is because most providers will be able to claim more in house expenses on Form 8829 (property tax, mortgage interest, house insurance, utilities, house repairs, and house depreciation).
However, there are two situations where it may make sense to use the Simplified Method (as explained in the instructions to Schedule C, line 30). First, if you live on a military base and the vast majority of your housing expenses are paid by the military. Second, if you are going to show a loss for your business.You don't want to show a business loss more than two out of every five years. This is because doing so will attract the attention of the IRS. By using the Simplified Method it allows you to claim 100% of your property tax and mortgage interest on Schedule A as an itemized expense. By doing this you can reduce or eliminate your business loss while gaining some personal deductions.
However, it's okay if you are showing a business loss only occasionally. In this situation, don't use the Simplified Method.
Q: How can I deduct sales tax when I'm also buying personal items on the same receipt as business items?
A: If all the items on one receipt are shared business and personal expenses, claim the entire cost on the receipt (including sales tax) and multiply by your Time-Space Percentage. If some of the items are strictly personal and some are business and personal, follow these steps. First add up the personal items and multiply the sales tax percent to get the amount of sales tax that is personal. Add this sales tax to the cost of the personal items. Then subtract this amount from the total amount on the receipt, including the entire sales tax. The result is the amount you can deduct of the shared expenses, including sales tax. Multiply by your Time-Space Percentage to get the total business deduction.
Here's an example:$100 total cost on the receipt + $6 sales tax (6%)$25 strictly personal items, $75 shared business and personal items$25 strictly personal items x 6% sales tax = $1.50 + $25 = $26.50 total cost of personal items$106 - $26.50 = $79.50 total cost of shared items, including sales tax$79.50 x your Time-Space Percentage = your business deduction.
Tom Copeland - www.tomcopelandblog.com
Image credit: driverlayer.com
For more information, see my Family Child Care Tax Workbook and Organizer.
