We do tax returns for a lot of child care businesses and many are not aware of this strategy to increase their tax refund.
The IRS rules regarding depreciation of personal property are very lenient, with the proper documentation. Many of our clients don’t depreciate all of the personal items used in their business.
Most people know that they can depreciate their home, usually using the time-space percentage. And they are pretty good about claiming depreciation on the refrigerator, washer and dryer, TV’s, etc. But there is a great deal more that can be depreciated and all those little things add up. Things like a new chandelier, weatherstripping, that programmable thermostat, a new bathtub, a sandbox, patio, fencing, the pictures on the walls and all the other items that give your home that warm and fuzzy feeling important to children, etc., etc. (we show you how to procure a more exhaustive list below.)
And, if you have been in business for a couple of years and have not depreciated these items, you can still do so by claiming that past depreciation on your next tax return or even amending a prior year return.
So, how much can you gain? It’s different for everyone. You would walk through your house, room by room and determine items that are used in your business or that have value in your business and assign a fair market value (FMV) and a purchase date to each item. The FMV is the tricky part. If the item is new, you can use the receipt. If you don’t have receipts or the item has been in use a while, you can find a value by looking up the items on a charity website, like Salvation Army or Goodwill. The FMV is the price others would pay for that item if sold right now.
If you provide that list to your tax preparer, they can determine the depreciation schedule (how many years you need to fully depreciate) for each item. With that and the FMV, each year’s depreciation can be determined. Let’s say you came up with a list of items that had a total value of $12000 and the average depreciable life was 5 years and you are using straight line depreciation. Further, your time space percentage is 65%. A much simplified calculation would result in $1170 in depreciation ($12000 divided by 5 years times 0.65 = $1560). If you are in the 25% tax bracket, that would give you an extra $390 in your Federal refund plus another $78 for CO (this year and for 4 more years). If you could have depreciated these items for the last 2 years and hadn’t, we could claim that depreciation as well, for the last 2 years plus the current year plus the next 2 years.
Our most recent use of this strategy helped one of our clients gain nearly $800 additional refund this last year.
Want more details on how this could help you? Send an email to firstname.lastname@example.org and just put HELP ME INCREASE MY CHILD CARE BUSINESS TAX REFUND in the memo line. I will send you some info on how to start this process. No charge and no obligation.
Of course, we are hoping that you will allow us to prepare your tax returns. That would save you even more money, this year and every year.
AFS – USE THE BEST FOR LESS