Daycare.com Forum
Daycare and Taxes>Can a Net Loss Increase Joint Tax Burden?
momo 07:13 PM 02-10-2013
Hi,
2012 was the first year for my home daycare. I got the redleaf calendar and kept track of everything. Now I am reading up on this website (and waiting for the 'family child care 2012 tax book and organizer' to arrive in the mail) to understand how to actually file my taxes.
I haven't calculated everything yet but given startup costs (and startup enrollment levels) I expect that when I do I will have a substantial net loss. In 2011 only my husband worked and we itemized our joint return. The way I understand it, I am supposed to claim a portion of mortgage interest and real estate taxes (as well as utilities and home depreciation) against my business income - even if my net loss turns out to be greater than the sum of those items... and then my business income cannot be less than zero.
So when you put things together, we will be reporting:
Is the above correct, or am I missing something? For instance, am I allowed to not claim the mortgage interest and real estate taxes against my business income, and only claim the utilities and depreciation instead?
Thanks.
Heather
2012 was the first year for my home daycare. I got the redleaf calendar and kept track of everything. Now I am reading up on this website (and waiting for the 'family child care 2012 tax book and organizer' to arrive in the mail) to understand how to actually file my taxes.
I haven't calculated everything yet but given startup costs (and startup enrollment levels) I expect that when I do I will have a substantial net loss. In 2011 only my husband worked and we itemized our joint return. The way I understand it, I am supposed to claim a portion of mortgage interest and real estate taxes (as well as utilities and home depreciation) against my business income - even if my net loss turns out to be greater than the sum of those items... and then my business income cannot be less than zero.
So when you put things together, we will be reporting:
- my net loss which may carry over but for this year counts as zero
- my husband's income just like last year - except there will be less mortgage interest and real estate taxes to itemize
Is the above correct, or am I missing something? For instance, am I allowed to not claim the mortgage interest and real estate taxes against my business income, and only claim the utilities and depreciation instead?
Thanks.
Heather
frugalmama4 08:10 PM 02-10-2013
Hi Momo,
I too am at a loss with all this...just ran through turbotax playing around with numbers an stuff...and my family has a $0 tax bill. Who knew actually making money would cost you less money in taxes...Lol! I thought you had to be poor to get $$$ back from uncle Sam image the egg on my face
Anywhoo-I recommend you re-post your question and direct it to Tom Copeland he's the man with ALL the answers check out his blog too...www.tomcopeland.com
Also, try Turbotax out its free you pay once your ready to file...but you don't have to file with them you can just play with your numbers.
Tips-When entering your house expenses (property tax, mortgage interest, utilities, etc.) you should be entering the total amount of the expense. But when entering all other business expenses (second phone line, house alarm toys, supplies, etc) you should enter the time-space % amount for items that are used for business and personal purposes. ck out these threads on tax info...and try searching under "tags"
https://www.daycare.com/forum/showthread.php?t=42385
https://www.daycare.com/forum/showthread.php?t=59285
https://www.daycare.com/forum/showthread.php?t=27891
Hope this helps...have a great night...I gotta get to bed
I too am at a loss with all this...just ran through turbotax playing around with numbers an stuff...and my family has a $0 tax bill. Who knew actually making money would cost you less money in taxes...Lol! I thought you had to be poor to get $$$ back from uncle Sam image the egg on my face
Anywhoo-I recommend you re-post your question and direct it to Tom Copeland he's the man with ALL the answers check out his blog too...www.tomcopeland.com
Also, try Turbotax out its free you pay once your ready to file...but you don't have to file with them you can just play with your numbers.
Tips-When entering your house expenses (property tax, mortgage interest, utilities, etc.) you should be entering the total amount of the expense. But when entering all other business expenses (second phone line, house alarm toys, supplies, etc) you should enter the time-space % amount for items that are used for business and personal purposes. ck out these threads on tax info...and try searching under "tags"
https://www.daycare.com/forum/showthread.php?t=42385
https://www.daycare.com/forum/showthread.php?t=59285
https://www.daycare.com/forum/showthread.php?t=27891
Hope this helps...have a great night...I gotta get to bed
momo 02:20 AM 02-11-2013
Thanks for the input - but my question was very specific as to the requirements around claiming home mortgage interest and real estate taxes... If anyone knows the answer to my question, please post on this thread and I will appreciate it.
Otherwise, I will wait for Tom Copeland's tax book and organizer that I mentioned above and hope it has the answer.
Otherwise, I will wait for Tom Copeland's tax book and organizer that I mentioned above and hope it has the answer.
Jewels 04:30 AM 02-11-2013
hmm yeah that does sound right, I know since I started daycare, we have never had enough to itemize our joint eturn, because I take so much of the mortgage interest away, so now we just do the standard deductions, I'm not sure if you have to take them for your business, so I can't answer this you'll have to wait for Tom, But I would think you would still want to keep it on your business side, Is it showing your going to Owe? this loss will help you alot next year doing a whole year of childcare.
momo 04:36 AM 02-11-2013
I found the answer to my question here: http://www.irs.gov/publications/p587...link1000226324 ...The most relevant part is pasted below (the linked text is dozens of pages long).
Basically, it means that in order to be able to apply all of the mortgage interest and real estate taxes against my husband's income like we did for 2011 tax year, the income from my daycare that I started in 2012 would have to be zeroed out by just my direct expenses (supplies, depreciation on furniture and appliances) that are not related to my house. I can't claim utilities or depreciation on the house (or depreciation on our new water heater and wood fence) based on ts% until after first claiming all possible interest and taxes against my daycare income.
Hopefully that makes sense to anyone who may have a similar question; I think I understand it now.
For example: to keep it simple, suppose I have NO direct expenses (supplies, equipment depreciation, meals, etc.) for my daycare and my ts is 50%. If my daycare gross income is $5k and my home depreciation and utilities total $10k ($5k business portion) then I think, "Awesome, the utilities and depreciation zero out my daycare income and all the other deductions can apply against my husband's income!" However, if my mortgage interest & real estate taxes are $10k, then the business portion of interest and taxes is $5k which must be counted first and I cannot claim any utilities or home depreciation at all.
Edit: to your point, Jewels, in that example I could claim utilities/depreciation for carry-over to next year.
Basically, it means that in order to be able to apply all of the mortgage interest and real estate taxes against my husband's income like we did for 2011 tax year, the income from my daycare that I started in 2012 would have to be zeroed out by just my direct expenses (supplies, depreciation on furniture and appliances) that are not related to my house. I can't claim utilities or depreciation on the house (or depreciation on our new water heater and wood fence) based on ts% until after first claiming all possible interest and taxes against my daycare income.
Hopefully that makes sense to anyone who may have a similar question; I think I understand it now.
For example: to keep it simple, suppose I have NO direct expenses (supplies, equipment depreciation, meals, etc.) for my daycare and my ts is 50%. If my daycare gross income is $5k and my home depreciation and utilities total $10k ($5k business portion) then I think, "Awesome, the utilities and depreciation zero out my daycare income and all the other deductions can apply against my husband's income!" However, if my mortgage interest & real estate taxes are $10k, then the business portion of interest and taxes is $5k which must be counted first and I cannot claim any utilities or home depreciation at all.
Edit: to your point, Jewels, in that example I could claim utilities/depreciation for carry-over to next year.
Originally Posted by :
Deduction Limit
If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home.
If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited.
Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following.
Deduction Limit
If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home.
If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited.
Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following.
- The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). These expenses are discussed in detail under Deducting Expenses , later.
- The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself.
frugalmama4 07:40 AM 02-11-2013
I can't wait to see what Tom says on this subject.
I'm totally confused here.
Would the way your expenses are claim have something to do with whomever is filing as "head of household"?
I thought you we're allowed to itemized deductions (mortgage interest, real estate taxes, medical etc) rather or not you have a business??? and if its more then the "standard deduction" it's best to do so.
However, when you add in the fact that you are self employed and use your home for business then you can also take a portion of the (mortgage interest etc) based on your T/S% against your gross business income...right?
Oh this is more then I can handle...I need a personal accountant
I'm totally confused here.
Would the way your expenses are claim have something to do with whomever is filing as "head of household"? I thought you we're allowed to itemized deductions (mortgage interest, real estate taxes, medical etc) rather or not you have a business??? and if its more then the "standard deduction" it's best to do so.
However, when you add in the fact that you are self employed and use your home for business then you can also take a portion of the (mortgage interest etc) based on your T/S% against your gross business income...right?
Oh this is more then I can handle...I need a personal accountant
Jewels 12:00 PM 02-11-2013
I know for me prior to doing childcare my husband and I always itemized, but since doing childcare with such a big chunk of our mortgage interest going to my self employment, we no longer have enough to itemize, and now just do the standard since its more, but yeah before that it always worked better to itemize............and i do remember Tom said something in another post about not being able to depreciate if your income is 0. I haven't had 0 or loss since my first year so I can't remember
momo 01:07 PM 02-11-2013
I know that the carry-forward losses will help next year but it just seems kinda funny to me that if my ts% were lower this year, our joint tax burden would actually be lower (because I could count depreciation, utilities while leaving part of the interest/taxes to count against my husband's income)... but I suppose with a tax code that is tens or hundreds of thousands of pages long, you can't expect everything to make sense to everyone.
I plan to only care for two kids besides my own, so given that and my high home costs it's conceivable that even an ongoing basis I would most benefit not from maximizing ts% but from "dialing it in..." Hopefully that's not the case - I'm glad to be able to care for my own kids but will feel better (and guessing the IRS would too) if I am showing at least a little bit of profit on paper as well!
I plan to only care for two kids besides my own, so given that and my high home costs it's conceivable that even an ongoing basis I would most benefit not from maximizing ts% but from "dialing it in..." Hopefully that's not the case - I'm glad to be able to care for my own kids but will feel better (and guessing the IRS would too) if I am showing at least a little bit of profit on paper as well!
TomCopeland 04:31 PM 02-11-2013
Originally Posted by frugalmama4:
I can't wait to see what Tom says on this subject.
I'm totally confused here. Would the way your expenses are claim have something to do with whomever is filing as "head of household"?
I thought you we're allowed to itemized deductions (mortgage interest, real estate taxes, medical etc) rather or not you have a business??? and if its more then the "standard deduction" it's best to do so.
However, when you add in the fact that you are self employed and use your home for business then you can also take a portion of the (mortgage interest etc) based on your T/S% against your gross business income...right?
Oh this is more then I can handle...I need a personal accountant
Family child care providers must allocate their property tax and mortgage interest between IRS Form 8829 and Schedule A (itemize). List your total of these expenses on Form 8829 and then multiply them by your time-space % to get the amount you can claim on Form 8829. The difference you claim on Schedule A. So, if your expenses for these two items were $10,000 and your time-space % was 40% you would claim $4,000 on Form 8829 and $6,000 on Schedule A. You must split these expenses in this manner.I can't wait to see what Tom says on this subject.
I'm totally confused here.
Would the way your expenses are claim have something to do with whomever is filing as "head of household"? I thought you we're allowed to itemized deductions (mortgage interest, real estate taxes, medical etc) rather or not you have a business??? and if its more then the "standard deduction" it's best to do so.
However, when you add in the fact that you are self employed and use your home for business then you can also take a portion of the (mortgage interest etc) based on your T/S% against your gross business income...right?
Oh this is more then I can handle...I need a personal accountant
If your business expenses exceed your income, then you can't claim house expenses on Form 8829. Instead, you roll them over to the next year.
Join me for a webinar “2012 Tax Changes: How to Avoid Mistakes on Your Tax Return” Tuesday, February 12th at 8:30-10:00pm Eastern Time. The cost is $25 (100% tax deductible!). To register: http://events.r20.constantcontact.co...&llr=yatrx4cab
lilcupcakes09 04:32 PM 02-11-2013
I opened my daycare in late August 2009, I was working 2 jobs and having taxes taken out of both. For that year I had a substantial loss with all my start up costs, etc. My refund was what was withheld and then some. My second year I had a small profit, didn't pay any taxes in, and got money back. I always wondered how I could get money back if I never put any in...
TomCopeland 07:25 PM 02-11-2013
Originally Posted by lilcupcakes09:
I opened my daycare in late August 2009, I was working 2 jobs and having taxes taken out of both. For that year I had a substantial loss with all my start up costs, etc. My refund was what was withheld and then some. My second year I had a small profit, didn't pay any taxes in, and got money back. I always wondered how I could get money back if I never put any in...
You could get money back even without paying in if you were eligible for the Earned Income Credit which is refundable.I opened my daycare in late August 2009, I was working 2 jobs and having taxes taken out of both. For that year I had a substantial loss with all my start up costs, etc. My refund was what was withheld and then some. My second year I had a small profit, didn't pay any taxes in, and got money back. I always wondered how I could get money back if I never put any in...