eafaillace 11:05 PM 03-26-2015
I have recently opened a new daycare and have a question regarding when to account for my startup costs for tax purposes. I had to purchase all items (fence, furniture, safety) to make my in-home daycare ready for operational status before the state would visit for inspection prior to issuance of a Daycare License. I began this process in February of 2014, and received my license in August of the same year and began advertising. However, I did not get my first child to care for until February of 2015.
According to Tom Copeland's book 2014 Tax Workbook & Organizer "To the IRS, your business begins when you’re ready to enroll children and are advertising that fact to the public", which indicates that this is the year I must apply my startup costs. My question is regarding the depreciation of items used in the daycare business that was in use before the business started.
If I understand things correctly, I must depreciate these items using the time/space ratio to establish a basis. The dilemma I have is that I did not get my first child to care for until 2015. How do I compute the depreciation if I do not yet have a "Time" value to apply to the formula?
If I use the time I spent actually working in the daycare in 2014 with no clients (very few hours), the result would appear to be an extremely small value relative to the percentage that I would use in the year in which I have actual clients. And it appears that I would be stuck with this low value.
Do I use 2014 as the Business Start year, even though I have no clients? Or do I use 2015 as the year since this is when I actually started performing services related to my business? And of course I have no income in 2014, so I do not know if this would be a cause for the IRS to take notice.
Thank you
TomCopeland 09:10 AM 03-27-2015
Originally Posted by eafaillace:
I have recently opened a new daycare and have a question regarding when to account for my startup costs for tax purposes. I had to purchase all items (fence, furniture, safety) to make my in-home daycare ready for operational status before the state would visit for inspection prior to issuance of a Daycare License. I began this process in February of 2014, and received my license in August of the same year and began advertising. However, I did not get my first child to care for until February of 2015.
According to Tom Copeland's book 2014 Tax Workbook & Organizer "To the IRS, your business begins when you’re ready to enroll children and are advertising that fact to the public", which indicates that this is the year I must apply my startup costs. My question is regarding the depreciation of items used in the daycare business that was in use before the business started.
If I understand things correctly, I must depreciate these items using the time/space ratio to establish a basis. The dilemma I have is that I did not get my first child to care for until 2015. How do I compute the depreciation if I do not yet have a "Time" value to apply to the formula?
If I use the time I spent actually working in the daycare in 2014 with no clients (very few hours), the result would appear to be an extremely small value relative to the percentage that I would use in the year in which I have actual clients. And it appears that I would be stuck with this low value.
Do I use 2014 as the Business Start year, even though I have no clients? Or do I use 2015 as the year since this is when I actually started performing services related to my business? And of course I have no income in 2014, so I do not know if this would be a cause for the IRS to take notice.
Thank you
I'd recommend that you treat 2015 as the year your business begins. You could use 2014, and then show a loss for that year, but I don't think it's in your best interest to do so.