Finishing Up Details For Taxes!

[Abigail]

After going in to someone who is familiar with childcare taxes to an extent, I have some questions on whether it's all right or not.

FENCE:
She depreciated the house but added things we did to the house as part of the value of the house. We added a fence for $4,588 because it was required to become licensed as a group provider. I thought that would be an expense 100% for daycare because it was required but instead she added it to the value of the home? Correct or wrong?

FINISHING BASEMENT, EXCLUSIVELY USED IN DAYCARE:
She also added the $8,000 we spent just on the daycare's lower level to be able to open for daycare last year to the value of the home. I understand the house gets depreciated so maybe it's doesn't make a difference whether it's depreciated as an expense or if it' the same concept as the fence?

MILEAGE:
I plan on looking up on mapquest all the in-city trips daycare related. I'm sure it's going to add up! 1 mile here and there. So if I take a few hours to do that then it's .55 per mile. OR ELSE is my other option using our vehicle insurances/oil changes/repair cost? Or was I suppose to save gas receipts instead of the other things?

LAND VALUE:
She entered $1,000 for land value on her program because she already entered the house value. Do you know if their are two places to enter an amount or is entering the value how she did okay?
I think that covers most of my questions. Thanks!!!!

[TomCopeland]

Tax questions

After going in to someone who is familiar with childcare taxes to an extent, I have some questions on whether it's all right or not.

FENCE:
She depreciated the house but added things we did to the house as part of the value of the house. We added a fence for $4,588 because it was required to become licensed as a group provider. I thought that would be an expense 100% for daycare because it was required but instead she added it to the value of the home? Correct or wrong?

FINISHING BASEMENT, EXCLUSIVELY USED IN DAYCARE:
She also added the $8,000 we spent just on the daycare's lower level to be able to open for daycare last year to the value of the home. I understand the house gets depreciated so maybe it's doesn't make a difference whether it's depreciated as an expense or if it' the same concept as the fence?

MILEAGE:
I plan on looking up on mapquest all the in-city trips daycare related. I'm sure it's going to add up! 1 mile here and there. So if I take a few hours to do that then it's .55 per mile. OR ELSE is my other option using our vehicle insurances/oil changes/repair cost? Or was I suppose to save gas receipts instead of the other things?

LAND VALUE:
She entered $1,000 for land value on her program because she already entered the house value. Do you know if their are two places to enter an amount or is entering the value how she did okay?
I think that covers most of my questions. Thanks!!!!

Fence - Should be depreciated as a land improvement (15 years) not as part of the home. Land improvements are eligible for the 50% bonus depreciation rule, so half the cost of your fence can be deducted now and the other half gets depreciated over 15 years.

Basement - Finishing a basement is a home improvement that must be depreciated over 39 years. The home is also depreciated over 39 years. However, if you are using your basement exclusively for your business you can depreciate 100% of the cost. If you lump it together with you home you will be depreciating it based on your time-space %. Therefore, depreciate your basement separately.

Mileage - The mileage rate for 2012 is $.555 per mile. If you use this mileage rate you can also deduct any parking expenses, tolls, and the business portion of your car loan interest. You don't receipts for anything else. If you use the actual expenses method to claim car expenses you need all receipts associated with car expenses (gas, oil, insurance, etc.).

Land - You cannot depreciate the value of the land. Therefore, you should put down on your tax form the value of the home and then subtract from that the value of the land.

[Abigail]

Fence - Should be depreciated as a land improvement (15 years) not as part of the home. Land improvements are eligible for the 50% bonus depreciation rule, so half the cost of your fence can be deducted now and the other half gets depreciated over 15 years.
So it's more financially beneficial to do the fence the correct way like you say to deduct half the expense now and then depreciate the rest over 15 years because that means it lowers my income for half the fence cost which half the fence cost was 2,300 so that is a huge instant drop of my income. Right?

Basement - Finishing a basement is a home improvement that must be depreciated over 39 years. The home is also depreciated over 39 years. However, if you are using your basement exclusively for your business you can depreciate 100% of the cost. If you lump it together with you home you will be depreciating it based on your time-space %. Therefore, depreciate your basement separately.
Every room in the basement except the laundry room is 100% exclusively used for daycare. I don't understand what you mean by lumping it together with the home using time/space? Is it possible to depreciate the house in "parts"? I don't want to drive my tax lady nuts, but I had to explain to her my exclusive use rooms because when she entered it in her computer it was 31% then it jumped up to about 60% when she found where the enter exclusive use footage.

Mileage - The mileage rate for 2012 is $.555 per mile. If you use this mileage rate you can also deduct any parking expenses, tolls, and the business portion of your car loan interest. You don't receipts for anything else. If you use the actual expenses method to claim car expenses you need all receipts associated with car expenses (gas, oil, insurance, etc.).
So if I have receipts for all my daycare trips....which were MANY in 2012 when I started then I can add up all the in city mileage without an issues because of those receipts or should I have saved all my other receipts to prove I did personal trips as well?


Land - You cannot depreciate the value of the land. Therefore, you should put down on your tax form the value of the home and then subtract from that the value of the land.
I'm not sure what you mean here? She uses her computer but we own a home so would I find somewhere in our home papers the value of the land? I didn't know the land had a certain value.

Also, if she makes these changes when I see her next week those few changes alone would bring my income down to almost nothing, maybe 1-2 thousand BEFORE I give her my receipts which are thousands for my first year. What happens when I go negative? Does it carry over into this current year's taxes starting me out negative?


One more question: She also added 1,200 for carpet as added value of the home. Was that right? It was our master bedroom carpet so the room is just used regularly not exclusively. Is ANYTHING suppose to the added the the house itself anyways? I thought it was just suppose to be the purchase value of the home not the current value???

[TomCopeland]

expenses

If you have a business loss it gets transferred onto your Form 1040 and will reduce other taxable income. If you have a loss you may not be able to claim some or all of your house expenses on Form 8829. Any unclaimed house expenses on Form 8829 can get rolled over until the next year. Those are the only expenses you can roll over.

The carpet should not be added to the home and depreciated as part of the home. It should be treated as personal property and depreciated over 7 years. You are also entitled to use the 50% bonus depreciation rule that allows you to deduct 50% of the depreciation in the first year. Take the cost of the carpet, multiply it by your time-space % and then divide it by 2. Put that amount on Form 4562, line 14. Take the other half and depreciate it on Form 4562, Part I under 7 year property.

You home depreciation should be based on the lower of these two numbers: the purchase price of your home or the value of the home at the time you started using it for your business.