Tom Help Please! I'm A Newbie In Need Of Tax Advice

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  • frugalmama4
    Daycare.com Member
    • Jan 2012
    • 470

    Tom Help Please! I'm A Newbie In Need Of Tax Advice

    I posted this comment yesterday and have been all over your blog and this site looking for answers...I just need to hone in on these questions please. Thanks!

    Hello from Houston, TX

    So I started preparing for my home child care business as of Oct 3rd, 2011 (advertising/contacts/policy, setting up play areas, licensing classes, purchasing items etc). However, I did not take in my first kid until Dec 19h, 2011 so my question(s) are

    1.) Do I start deducting my expenses (property tax, mortgage interest, utilities, house insurance, house depreciation, furniture, appliances, equipment, etc.) from Oct 3rd, 2011 or would it be from Dec 19th, 2011?

    2nd issue
    I do use MMK! great software, after inputting all my expenses and running reports I'm still a little lost. I have used Turbo Tax for the last 2-years to do my own taxes. So I have been playing around with it this year inputting my numbers from MMK, some add up some do not.

    2.) I'm getting some real big special deprecation numbers, I'm thinking it has something to do with the 100% and/or 50% Bonus deprecation rules?

    e.g( thinking a sofa & love seat I purchased back in 2010 for $1591.00 used a 100% for personal use up until the business started (Oct 3rd or Dec 19th 2011) not sure which date is my actual start date.
    Now that the business is up and running the sofa & love seat are used a 100% for business (no family use at all, I have to living areas in my home) Turbo Tax is giving the whole $1591 as a special deprecation, anyone know if the is correct? Help please thanks....
  • TomCopeland
    Business Author/Trainer
    • Jun 2010
    • 3062

    #2
    New provider

    You have a choice. You can start counting the hours you worked in your home as of Oct 3rd or December 19th. If you use October 3rd, you will divide the hours you worked in 2011 by the number of hours from October 3rd to December 31st. Then you can count your house expenses from these dates as well. If you choose December 19th, then you divide by the number of hours you worked from December 19th to December 31 by the total number of hours between those two dates. Then claim house expenses for the 12 days. You are probably better off choosing October 3rd, even though your time-space % will be smaller than if you chose December 19th.

    You can only use the 100% bonus depreciation rule if you bought the sofa new in 2011. Since you didn't, you should estimate its value at the time you first started using it in your business (probably December 19th, because you didn't have children until then). Then depreciate this value over 7 years. Do the same with all the other furniture and appliances you had in your home and started using in your business on December 19th.

    Join me on February 9th at 8:30pm Central time for my webinar "2011 Family Child Care Tax Update: How to Reduce Your Taxes" :http://events.r20.constantcontact.co...&llr=yatrx4cab
    http://www.tomcopelandblog.com

    Comment

    • frugalmama4
      Daycare.com Member
      • Jan 2012
      • 470

      #3
      Tom Help please! Follow up qestion

      Originally posted by TomCopeland
      You have a choice. You can start counting the hours you worked in your home as of Oct 3rd or December 19th. If you use October 3rd, you will divide the hours you worked in 2011 by the number of hours from October 3rd to December 31st. Then you can count your house expenses from these dates as well. If you choose December 19th, then you divide by the number of hours you worked from December 19th to December 31 by the total number of hours between those two dates. Then claim house expenses for the 12 days. You are probably better off choosing October 3rd, even though your time-space % will be smaller than if you chose December 19th.

      You can only use the 100% bonus depreciation rule if you bought the sofa new in 2011. Since you didn't, you should estimate its value at the time you first started using it in your business (probably December 19th, because you didn't have children until then). Then depreciate this value over 7 years. Do the same with all the other furniture and appliances you had in your home and started using in your business on December 19th.

      Join me on February 9th at 8:30pm Central time for my webinar "2011 Family Child Care Tax Update: How to Reduce Your Taxes" :http://events.r20.constantcontact.co...&llr=yatrx4cab
      Thank you so much for answering my questions...you da man!

      Ok, so I'm so smart...not "never click the help button in turbo tax" it clearly states Property converted to business use from personal use "use fair market value"

      So I'm estimating the value of the sofa and love seat to be $1200.00 combined ($1591-20%) and Turbo Tax is still giving me the whole $1200.00 as a special depreciation it reads, This asset qualifies for a one time special depreciation deduction of $1,200.Do you want to take this deduction? Should I say no?

      These are the questions Turbo, is asking my answers are in red

      Date purchased or acquired: (mm/dd/yyyy) 09/01/2010

      I traded in an old asset to acquire this one (this is not common) No

      I purchased this asset new Yes


      Have you used this item 100% for this business since you acquired it?

      Yes, I've always used this item 100% of the time for this business.

      No, I have not always used this item 100% of the time for this business. Explain This


      I used this item for personal purposes before I started using it in this business. Yes,


      I first used this item at least part of the time for this business, and also used it for personal purposes. No

      Date I started using it in this business: 12/19/2011
      Percentage of time I used this item for this business in 2011 (e.g., 80%): 100 "no personal use at all"


      Is the item still in service?

      Yes I'm still using it for this business.

      Thanks so much!!!

      Comment

      • frugalmama4
        Daycare.com Member
        • Jan 2012
        • 470

        #4
        One more follow up question

        I'm so lost....:confused:

        How in the world would I go about calculating the house expenses for only 12 days?

        If I do use the Dec 19th date, would I still use Oct 3rd for mileage since I did use my vehicle for business (training classes/purchasing items etc) starting Oct 3rd.

        I'm claiming the actually miles and not the standard mileage rate; however since MMK keeps track of your miles and gives you a total Business use percentage for the year, that I will be able to transfer to turbo tax I will track miles as a back up too. Is this a good ideal? or waste of time?

        Thanks again....would you like to be my new BFF best friends forever

        Comment

        • TomCopeland
          Business Author/Trainer
          • Jun 2010
          • 3062

          #5
          house expenses

          Originally posted by frugalmama4
          I'm so lost....:confused:

          How in the world would I go about calculating the house expenses for only 12 days?

          If I do use the Dec 19th date, would I still use Oct 3rd for mileage since I did use my vehicle for business (training classes/purchasing items etc) starting Oct 3rd.

          I'm claiming the actually miles and not the standard mileage rate; however since MMK keeps track of your miles and gives you a total Business use percentage for the year, that I will be able to transfer to turbo tax I will track miles as a back up too. Is this a good ideal? or waste of time?

          Thanks again....would you like to be my new BFF best friends forever
          12 days is 3.28% of the year. Assuming you used the rooms in your home f rom Dec 19th til the end of the year on a regular basis and guessing that you time% is 40%, your time-space % would be 40%. If your property tax for the year was $3,000 - $3,000 x 3.28% = $98.40 x 40% = $9.36

          Yes, you can count mileage since Oct 3rd. Turbo Tax will ask you to enter all car expenses and it will compare the actual method with the standard method and tell you which is more.
          http://www.tomcopelandblog.com

          Comment

          • TomCopeland
            Business Author/Trainer
            • Jun 2010
            • 3062

            #6
            depreciation

            Originally posted by frugalmama4
            Thank you so much for answering my questions...you da man!

            Ok, so I'm so smart...not "never click the help button in turbo tax" it clearly states Property converted to business use from personal use "use fair market value"

            So I'm estimating the value of the sofa and love seat to be $1200.00 combined ($1591-20%) and Turbo Tax is still giving me the whole $1200.00 as a special depreciation it reads, This asset qualifies for a one time special depreciation deduction of $1,200.Do you want to take this deduction? Should I say no?

            These are the questions Turbo, is asking my answers are in red

            Date purchased or acquired: (mm/dd/yyyy) 09/01/2010

            I traded in an old asset to acquire this one (this is not common) No

            I purchased this asset new Yes


            Have you used this item 100% for this business since you acquired it?

            Yes, I've always used this item 100% of the time for this business.

            No, I have not always used this item 100% of the time for this business. Explain This


            I used this item for personal purposes before I started using it in this business. Yes,


            I first used this item at least part of the time for this business, and also used it for personal purposes. No

            Date I started using it in this business: 12/19/2011
            Percentage of time I used this item for this business in 2011 (e.g., 80%): 100 "no personal use at all"


            Is the item still in service?

            Yes I'm still using it for this business.

            Thanks so much!!!

            Your answers are correct. If Turbo Tax is allowing you to deduct $1,200, it is wrong. I don't know why Turbo Tax is wrong on this. I think maybe it's because most businesses don't buy something personal and then later use it for their business. The way around this is to tell Turbo Tax you bought a $1,200 sofa used in 2011. Then it will depreciate it over 7 years.
            http://www.tomcopelandblog.com

            Comment

            • frugalmama4
              Daycare.com Member
              • Jan 2012
              • 470

              #7
              My last question of the day!

              Originally posted by TomCopeland
              12 days is 3.28% of the year. Assuming you used the rooms in your home f rom Dec 19th til the end of the year on a regular basis and guessing that you time% is 40%, your time-space % would be 40%. If your property tax for the year was $3,000 - $3,000 x 3.28% = $98.40 x 40% = $9.36

              Yes, you can count mileage since Oct 3rd. Turbo Tax will ask you to enter all car expenses and it will compare the actual method with the standard method and tell you which is more.
              Thanks so much Tom!

              How did you get the 3.28% number? My mind works better when I get the whole picture...these are my numbers for 2011

              Hours worked 131 (Dec 19-31st) Hours in 2011 (312) based on MMK time space report

              sq feet exclusive area 952 (32.37%)
              sq feet regular area 331 (11.25%)
              total sq feet 2941
              Time% (42.02%)
              Time Space % (37.10%)

              Should I worry with claiming any utilities bills for 2011 since I started so late?

              Comment

              • TomCopeland
                Business Author/Trainer
                • Jun 2010
                • 3062

                #8
                t/s%

                12 days divided by 365 days = 3.28%

                Here's your time-space %:
                32.37% exclusive use area
                11.25% (space) x 42.02% (time) = 4.72%
                32.37% + 4.72% = 37.09% Time-Space %

                If your utility bill for the last 12 days of the year were $200:
                $50 x 37.09% = $18.55


                Join my on February 9th, 8:30pm Central time for my webinar "2012 Family Child Care Tax Update: How to Reduce Your Taxes ": http://events.r20.constantcontact.co...&llr=yatrx4cab
                http://www.tomcopelandblog.com

                Comment

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