Conduct a Household Inventory to Save Money
By Tom Copeland, published with permission
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.
These deductions are household items that you are using in your business. These 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 by depreciating it.
Household items are depreciated over 7 years. If you are using these items for both business and personal use, apply your Time-Space Percentage before depreciating them.
If you are a new child care provider -
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. In addition, take pictures of each room in your home (including your basement and garage).
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 the value of all your household items was $10,000. If your Time-Space Percentage was 40%, you can depreciate $4,000 ($10,000 x 40%) as a business expense over 7 years. This represents approximately $570 in tax deductions each year for 7 years.
Many child care providers fail to take advantage of the tax rules that allow you to depreciate household items they owned before their business began. Turn over your inventory to your tax preparer and have him/her calculate the depreciation deduction. If you do your own taxes, use my annual Family Child Care Tax Workbook and Organizer to calculate your deduction.
If you have been in business for a number of years, but have not claimed this depreciation deduction, I will be writing a future article on how to recapture these expenses.
Image credit: www.redleafpress.org
For information, see my book Family Child Care Tax Workbook and Organizer.