Making a profit

[TheGoodLife]

I am a small home DC- I am license exempt and watch up to 3 at a time. This covers the income I need to make for bills and whatnot, but I worry that our high deductions (bigger home and the expenses that go with it, ect) will keep me from showing a profit, taxwise, after these first few years. Then the IRS could claim I work as a "hobby" and keep me from deducting child care expenses. Does anyone (Tom?! ) have any info/suggestions as to how I make sure I can keep up with my business without losing the tax benefits of a home daycare? This is just the end of my first year so Im still new to all these tax regulations and everything. TIA!!!

[TomCopeland]

Profit

I am a small home DC- I am license exempt and watch up to 3 at a time. This covers the income I need to make for bills and whatnot, but I worry that our high deductions (bigger home and the expenses that go with it, ect) will keep me from showing a profit, taxwise, after these first few years. Then the IRS could claim I work as a "hobby" and keep me from deducting child care expenses. Does anyone (Tom?! ) have any info/suggestions as to how I make sure I can keep up with my business without losing the tax benefits of a home daycare? This is just the end of my first year so Im still new to all these tax regulations and everything. TIA!!!

Your situation is not unique. I would recommend showing a profit of at least $1 for three out of every five years. You can do this by not claiming some of your expenses, if necessary. Businesses who don't show a profit three out of every five years are more likely to be audited. It's possible that if you don't do this the IRS may not consider you a business. But, the consequences may only be that you will be denied deductions so your business will show a profit.

[TheGoodLife]

Your situation is not unique. I would recommend showing a profit of at least $1 for three out of every five years. You can do this by not claiming some of your expenses, if necessary. Businesses who don't show a profit three out of every five years are more likely to be audited. It's possible that if you don't do this the IRS may not consider you a business. But, the consequences may only be that you will be denied deductions so your business will show a profit.

Thanks Tom! Does it make a difference what I don't claim as expenses? Would you recommend not depreciating some items?

[TomCopeland]

Loss

Thanks Tom! Does it make a difference what I don't claim as expenses? Would you recommend not depreciating some items?

Don't reduce your depreciation expenses. This is because if you ever sell them at a profit, you may have to pay more in taxes if you don't depreciate them.