What Expense Category Do You Choose?
What expense category do the following expenses belong on a family child care provider's tax return?
A photo album/scrapbook to display photos during parent interviews.
Toys and printer cartridges that appear on one receipt from Target.
Masks, gloves and hand sanitizers to protect against COVID-19.
The answer is easy. Put your receipts in any expense category you want!
No matter what expense category you put an item in, all expenses will eventually be added together on your tax form Schedule C. So, it doesn’t matter what category you choose.
Don’t know what to call the photo album/scrapbook? Call it advertising or call it supplies.
Don’t separate out the toys and printer cartridges. Call everything on the receipt either toys or printer cartridges. I’d probably choose the category that I spent the most money on.
You can lump your COVID-19 supplies together with all other supplies and call them "Supplies", or you can treat them as a separate expense category and call them "COVID-19" expenses on the back of Schedule C.
Two Situations
There are two situations where you should be selective in what expense category you choose. All of your house expenses belong on Form 8829 Expenses for Business Use of Your Home (property tax, mortgage interest, house insurance, utilities, house repairs, and house depreciation). These expenses will then be transferred onto your Schedule C. Note: If you do child care in a home you don’t live in, don’t file Form 8829. Instead put your house expenses directly onto Schedule C.
Secondly, don’t lump the vast majority of your expenses under Supplies on Schedule C. If the expenses on any one line of your Schedule C are many times larger than all your other expenses, this may attract attention from the IRS. You may be tempted to put many of your expenses here because there doesn’t seem to be any other place for them to go. Instead, spread your expenses over several other lines.
A Solution
I’ve come up with a guideline to help you choose an expense category for items you purchase. In my book Family Child Care Record Keeping Guide, I list over 1,000 allowable business deductions. I’ve listed each deduction under a specific expense category as they appear on Schedule C and Form 8829, and in the order they appear on the tax forms! The book has an alphabetical Index of all the expenses so it’s easy to see what category each expense falls under.
Because you have many expenses that don’t seem to fit under any of the Schedule C expense categories, I created five additional categories: Food, Toys, Household Items, Cleaning Supplies and Activity Expenses. I believe that these categories will satisfy most providers.
The expense categories I’ve chosen for the 1,000 deductions are a suggestion. You don’t need to follow what’s in my book. You can create your own categories and put them on one of the lines on the back of Schedule C. Tax preparers may have their own categories they want you to use. It’s up to you.
If you use the KidKare software, it lists the expense categories as they appear on your tax forms and it uses my five additional categories. You can also create new categories of your own.
If you use the Redleaf Calendar-Keeper, it contains two pages each month to enter your expenses. The expense categories are shown in the order that they appear on Schedule C and include my five additional categories.
Tom Copeland – www.tomcopelandblog.com
Image credit: https://kidsworkchicago.com/preparing-your-infant-0-2-for-daycare/
For more information, see my book Family Child Care Record Keeping Guide.
