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
[email protected], 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?