Daycare expenses

[oceanlovin'ea]

I am working on a return for someone who started a day care in her home last year. She had kept a couple of kids the year before but last year she got qualified through DCF as a daycare center. So this involved a lot of expense to make home and back yard safe for children.

A couple of expenses she had were a safety cover for her pool and kennels for her dogs. I think I can justify the pool cover but I am going back and forth on the kennels for her dogs. She had the dogs before the daycare. She can't let them loose when the kids are outside so I guess she would have to put them in crates when the kids go out to play. So I guess that would be a legitimate expense.

Any opinions.

Linda

[solomon]

Consider allocating with the same % you use for the daycare area in the house.

[Edward]

Day Care Instructions

Linda: I would highly recommend (if you don't already have) that you purchase a copy of Redleaf Press TAX COMPANION AND TAX WORKBOOK & ORGANIZER by Tom Copeland, JD. These two books will make your tax work much more pleasant. It has numerous examples and worksheets that are vital to the tax professional. I've been ordering these two books for years. Let me know what you think of them. They costs 17.95 each and can be ordered by calling 800-641-0115. Best of luck.

[appelman]

I agree with Solomon

I agree with Solomon regarding allocation of the kennel expense. But all of the expenses Linda mentions sound as though they should be capitalized and depreciated.

[oceanlovin'ea]

Planned to depreciate

Yes, I planned to depreciate the items like that she purchased. Since most of them are not listed under specific categories, I would assume that 7 year depreciation would be in order.

I have a copy of Redleaf Business Series on Caring for Children in your Home. I downloaded it from the web. In fact, I emailed this to my client when she started the business so that she would do things correctly. I will look it over again.

Are you referring to something in addition to what I have?

Linda

[Edward]

Yes, what I posted was about the two books that present everything you'll need to do an accurate tax return for a day care business. Call Readleaf and ask for a copy of their 2010 Family Child Care Catalog.
Copies of the two books is illustrated therein.

[FEDUKE404]

Going to the dogs

Interesting situation.

While I don't know the answers - thanks for the reference info! - I might stumble a bit over "ordinary and necessary" for the kennel expenses.

Would a doghouse and leash work? Sectional fence from Home Depot?

Dobermans or chihuahuas?

What if she also "needed" a fence around the pool? (Some localities already require that with no day care considerations!)

How about the placement of a fence around the entire yard (pool/dogs/children) ?? Would any of that constitute a business expense?? - likely not.

FE

[Edward]

I agree - dogs are out - there's certainly no deduction here.

[JohnH]

Are you sure dogs are out? Long ago I had a representative for an unnamed cosmetics company tell me she wanted to deduct food & vet bills for her "security cat" because she learned at a seminar it was deductible since it guarded her inventory. She actually said this with a straight face.

[Kram BergGold]

Kennel

I would use the home office percentage for the kennel. This is ordinary and necessary to prevent injury to the children.

[Kram BergGold]

Kennel more

If she only used the kennel when the children were there I would take 100% of it.

[FEDUKE404]

Filling out the paperwork

I would love to see a (sanitized version) copy of your Form 8829, especially Part I (line 1) and Part III, when you do figure this all out. From past experience, by the time you get to "use" any OIH depreciation a lot of it has frequently been limited out. And does the eventual (taxable) recapture of any depreciation upon sale of home still come into play?

Perhaps I just do not follow the logic of needing a kennel to run a day care - are these pit bulls or something? Most "family pets" would almost seem to be a positive for children.

For my 2¢ worth, I would not want to defend any kennel costs to an IRS auditor. Likely a lot of 'splaining would be necessary.

FE

[oceanlovin'ea]

Sorry for the delay in replying to your answers to my question.

I think that this will definitely require a conversation with the client. I don't know what kind of dogs she has and if the state or county required the dogs be kenneled when the children are in the yard.

She does have a pool and she had to get either a cover or fence for the pool. That is another topic we will have to discuss.

She was going through the processes required by county or state to be licensed by them.They have a lot of requirements but I know that she gets some help now for food costs.

After I talk to her I will let you know what she says.

Linda

[oceanlovin'ea]

update

You will all get a laugh out of this one. These "kennels" were not actually dog kennels. They were chain link fencing. She got 2 sections of 10' by 10' and put them together. She put the outside playground inside the fencing.
Her back yard was already fenced but she put this in the front yard for the kids to play. She said they had good running area lengthwise but it was not wide enough. So she ended up putting them in the back yard and putting chickens in them and then did a regular chain link fenced area in the front for the kids.

So of course I didn't even deduct them at all.

The cost of the fence I will depreciate. But it seems crazy to depreciate it over 31 1/2 years. If she closed the day care down the road, she would remove the fence and get rid of it because she doesn't like it in her front yard.

Linda

[Gretel]

Thanks for the update. Isn't life interesting?