Daycare.com Forum
Daycare and Taxes>New IRS Rule Makes Dramatic Changes
TomCopeland 02:44 PM 01-28-2013
Family child care providers will be able to claim up to $1,500 in house expenses on their 2013 tax return, without receipts, according to a new IRS Rule (IRS Rev. Proc. 2013-13).
If you choose this rule you will not be able to deduct any other house expenses: house depreciation, utilities, house insurance, property tax, mortgage interest and home repairs.
This will have a major impact on the family child care field. Because it will reduce paperwork by eliminating the need for providers to calculate their Time-Space % on Form 8829, many are likely to use the rule.
However, after looking closely at the rule, I believe the vast majority of providers will not benefit from using it.
The rule is based on multiplying the number of square footage of the home used on a regular basis for your business by $5 per square foot. The maximum square feet that can be claimed is 300. Therefore, the maximum deduction is $1,500. As a practical matter, all providers use more than 300 square feet of their home and will be able to claim the maximum $1,500 deduction.
Providers will still be able to claim all other expenses (food, toys, car, supplies, etc.) on Schedule C. The rule is voluntary. Providers can go back and forth from year to year using the new rule one year and filing Form 8829 the next. Providers, however, would not be able to amend their tax return once they choose a method for a particular year.
I will be writing a letter to the IRS asking to clarify a number of issues and I will be making a several recommendations to change the rule as well. I will recommend that providers be able to count up to 2,000 square feet at $5 per square foot, for a maximum deduction of $10,000 which is more realistic.
I would like to know your opinion about this new rule. Contact me at tomcopeland@live.com, call me at 651-280-5991 or post a comment here or on my blog or Facebook page. I will be incorporating everyone's suggestions into my IRS letter that will be sent March 15, 2013. At that time I will urge others to endorse my letter or send their own letter to the IRS.
I've posted a longer article about this on my blog, along with a draft of my IRS letter.
Because of the importance of this new rule, I urge everyone to pass the word to others about this.
What do you think about this? Will it help you or not? How would you like to see the rule modified?
If you choose this rule you will not be able to deduct any other house expenses: house depreciation, utilities, house insurance, property tax, mortgage interest and home repairs.
This will have a major impact on the family child care field. Because it will reduce paperwork by eliminating the need for providers to calculate their Time-Space % on Form 8829, many are likely to use the rule.
However, after looking closely at the rule, I believe the vast majority of providers will not benefit from using it.
The rule is based on multiplying the number of square footage of the home used on a regular basis for your business by $5 per square foot. The maximum square feet that can be claimed is 300. Therefore, the maximum deduction is $1,500. As a practical matter, all providers use more than 300 square feet of their home and will be able to claim the maximum $1,500 deduction.
Providers will still be able to claim all other expenses (food, toys, car, supplies, etc.) on Schedule C. The rule is voluntary. Providers can go back and forth from year to year using the new rule one year and filing Form 8829 the next. Providers, however, would not be able to amend their tax return once they choose a method for a particular year.
I will be writing a letter to the IRS asking to clarify a number of issues and I will be making a several recommendations to change the rule as well. I will recommend that providers be able to count up to 2,000 square feet at $5 per square foot, for a maximum deduction of $10,000 which is more realistic.
I would like to know your opinion about this new rule. Contact me at tomcopeland@live.com, call me at 651-280-5991 or post a comment here or on my blog or Facebook page. I will be incorporating everyone's suggestions into my IRS letter that will be sent March 15, 2013. At that time I will urge others to endorse my letter or send their own letter to the IRS.
I've posted a longer article about this on my blog, along with a draft of my IRS letter.
Because of the importance of this new rule, I urge everyone to pass the word to others about this.
What do you think about this? Will it help you or not? How would you like to see the rule modified?
Blackcat31 02:56 PM 01-28-2013
I would prefer to use the old way or your new suggestion since I am a provider who doesn't use time/space percentages.
I have a separate house for child care so I don't think this new way of doing it would benefit me at all.
I like your suggestion about being able to deduct a higher amount.
I have a separate house for child care so I don't think this new way of doing it would benefit me at all.
I like your suggestion about being able to deduct a higher amount.
kitykids3 03:02 PM 01-28-2013
Personally, my mortgage interest alone is over $4000, which does not include utilities, home maintenance, depreciation or anything else. The $1500 max would be a downfall if I were to use it. I would rather keep track of everything with receipts/statements and claim everything.
Plus, I think it opens up to some fraud. Everyone would be claiming the max allowed, wouldn't they, if they didn't have to have proof of some sort?
No, I would rather the old way.
Plus, I think it opens up to some fraud. Everyone would be claiming the max allowed, wouldn't they, if they didn't have to have proof of some sort?
No, I would rather the old way.
snbauser 04:10 PM 01-28-2013
I agree that the amount is way too low although I suppose for someone new who doesn't keep receipts/statements/records having a flat rate is helpful. For me, the time/space % of my utitilites alone is a lot more than the $1500 that would be allowed under that rule.
Heidi 04:53 PM 01-28-2013
I, too, deduct way more than that using the time/space formula. Your 2000 ft number is much more realistic. I can't imagine anyone being able to care for 4-12 children (depending on the state) in 300 square feet.
In WI, licensed childcare is maxium 8 kiddos, and 35 sq feet minumum per child, so that's only 280 sq feet, but I can't imagine how anyone could actually do that. Maybe one could make 280 sq feet of designated playspace work, but no way napping, meal prep, eating, and toileting too.
Maybe there is a zero missing!
In WI, licensed childcare is maxium 8 kiddos, and 35 sq feet minumum per child, so that's only 280 sq feet, but I can't imagine how anyone could actually do that. Maybe one could make 280 sq feet of designated playspace work, but no way napping, meal prep, eating, and toileting too.
Maybe there is a zero missing!
Jewels 05:32 PM 01-28-2013
That's horribly low, my mortgage interest alone also is close to $5000, I can't imagine a year where this would ever benefit me, and I will never use this, unless of course yes they are missing a Zero!
MarinaVanessa 03:40 PM 01-29-2013
When it comes to this new rule I would prefer to continue to keep receipts and figure out my time/space %. Reduction in paperwork or not I don't see how this new rule can help any family child care providers. A $1,500 deduction based on 300 sq feet of daycare space seems like such a low deduction amount considering that many of us family child care providers share the majority of our homes with the daycare. My home for one is 1,200 sq feet and 83% of that is shared space for daycare business. $1,500 wouldn't cover my deductions that I can claim the previous way like utilities, house depreciation, homeowner's insurance, property tax, my mortgage interest and our home repairs. For me at least, it seems pointless to claim in this way. I will continue to spend my time on record keeping in order to be able to claim more in deductions.
Gellybean6903 12:39 AM 02-14-2013
So Tom has said in the past that if you *aren't* licensed you cannot claim any house deductions (house depreciation, utilities, house insurance, property tax, mortgage interest and house repairs).
I'm wondering with this new rule, will we be able to claim the $1,500 even if we aren't licensed?
I'm wondering with this new rule, will we be able to claim the $1,500 even if we aren't licensed?
momofsix 07:03 AM 02-14-2013
I would love this new rule if you would be able to talk the square footage number up! I despise saving all my receipts, because I'm not normally a "paperwork" type of person. My husband is a pastor and we have to save everything for the housing allowance to the receipt saving at our house is absolutely crazy
Thank you Tom for all you do for daycare providers! We really do appreciate all your work!
Thank you Tom for all you do for daycare providers! We really do appreciate all your work!
TheGoodLife 07:21 AM 02-14-2013
It's my understanding that even though I'm not licensed, since I'm license exempt (I only watch 1-3 kids at a time) I can still claim deductions?
daycare123 08:20 AM 02-14-2013
I am unlicensed and i still get to claim everything a licensed person does
TomCopeland 11:46 AM 02-14-2013
Originally Posted by Mama2Bella:
It's my understanding that even though I'm not licensed, since I'm license exempt (I only watch 1-3 kids at a time) I can still claim deductions?
Yes, license exempt providers can now claim all the same house expenses on Form 8829 as providers who are licensed. You will also be able to choose the new rule in 2013.It's my understanding that even though I'm not licensed, since I'm license exempt (I only watch 1-3 kids at a time) I can still claim deductions?
Gellybean6903 06:13 AM 02-15-2013
So for companies like us that are getting ready to become licensed (takes FORVER here)...but are currently running a daycare over the regulated standards...will the new 1500 rule apply if you aren't licensed but you're going to be way in the future. Can I use it now?? Or do we have to wait until we get licensed?
TomCopeland 07:35 AM 02-15-2013
Originally Posted by Gellybean6903:
So for companies like us that are getting ready to become licensed (takes FORVER here)...but are currently running a daycare over the regulated standards...will the new 1500 rule apply if you aren't licensed but you're going to be way in the future. Can I use it now?? Or do we have to wait until we get licensed?
This new rule will go into effect in 2013. If you have applied to be licensed, even if you are not licensed by the end of the year, you can claim house expenses. Therefore, you would be able to take advantage of this new rule for 2013 if you have applied for a license.So for companies like us that are getting ready to become licensed (takes FORVER here)...but are currently running a daycare over the regulated standards...will the new 1500 rule apply if you aren't licensed but you're going to be way in the future. Can I use it now?? Or do we have to wait until we get licensed?
TomCopeland 10:35 AM 02-22-2013
I've written a new article about the IRS Safe Harbor Rule.
http://www.tomcopelandblog.com/2013/...llows-fam.html
I believe that most family child care providers will not benefit from this new rule. So I've written a letter to the IRS urging them to increase the amount providers could deduct for their house expenses under the rule. I've attached a copy of my letter to this article.
I urge all providers to send their own email to the IRS and either endorse what I've written or write your own note. The more providers to contact the IRS, the more likely they will listen.
http://www.tomcopelandblog.com/2013/...llows-fam.html
I believe that most family child care providers will not benefit from this new rule. So I've written a letter to the IRS urging them to increase the amount providers could deduct for their house expenses under the rule. I've attached a copy of my letter to this article.
I urge all providers to send their own email to the IRS and either endorse what I've written or write your own note. The more providers to contact the IRS, the more likely they will listen.