As an accounting major in college, I quickly learned all of the complicated parts of the accounting cycle. I discovered how to input the details of business transactions into a computerized accounting system. At the end of an accounting cycle, such as a month, I became experienced with calculating the revenue for the period. If you’re starting a new business, determining an accurate amount of revenue for each accounting cycle is crucial. You must know how much profit you’re making each accounting period in order to be successful in the long-term. On this blog, you will discover how an experienced accountant can help you keep track of your revenue.
If you own a licensed daycare that you run out of your home, there is a possibility that you qualify for a home office deduction. The rules for a home office deduction, when you own and run a daycare out of your home, are very specific. Here are a few things that you need to know about claiming an at-home office deduction when you run an in-home licensed daycare.
Your Taxable Income Will Be Reduced By The Deduction
The first thing that you need to understand is that all deductions, include the at-home office deduction, are designed to reduce the portion of your income that you are required to pay taxes.
If, for example, you made $50,000 last year, and you are able to claim $5,000 in at-home office expenses, your taxable income will be reduced to $45,000 for that particular tax year. This can have a significant impact on what you pay in taxes, especially if the deduction drops you into a lower tax bracket.
Home Office Deductions Are Different For Daycare Providers
When you run a daycare out of your home, the requirements for qualifying for at-home deductions and what can count are different than they are for other business professionals. For other business professionals, they have to have a room or area of their home solely dedicated to their business in order to take it off of their taxes. If, for example, they use an at-home office as a guest room when they have visitors, they can't take off any expenses for that portion of their home off their taxes; it has to be used only for business.
However, as an at-home daycare provider, you are given more leeway. You can deduct expenses from your taxes for any room in your home that you use for business purposes at all, even if you use that area of your home for personal use as well. For example, if you use your living room, bathroom and kitchen for your daycare, but also use it for personal use when your daycare is closed, you can include that in the percentage of your home that you deduct expenses for. This allows you to deduct a greater amount of expenses and reduce your taxable income by a greater amount than other work-at-home professionals.
What Qualifies For A Deduction
There are certain expenses that you are allowed to deduct from your taxes when you claim an at-home office deduction. These are called qualifying expenses. Common at-home qualifying expenses include things such as: rent payments, mortgage payments, property taxes, water bills, gas bills, internet, electricity and maintenance costs. It can also include the cost of an additional phone line.
You can deduct the a set percentage of all of those expenses. For example, if you use 50% of your home for day-care purposes for 50% of the year, you can deduct 50% of the cost of each of the qualifying expenses listed above from your overall taxable income.
If you run an at-home daycare, do not miss out on the opportunity to lower your tax bills through the at-home office deduction. Have your accountant help you figure out what of your expenses are qualifying expenses, and what percentage of those expense you can deduct for the home-office deduction. Contact a professional like Kenneth L Lahner CPA for more information.
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