Closed - Questions for Tom

[Unregistered]

I closed my business last week after 12 years. I have a few questions as I complete the closing process.

1. I will be selling some of my equipment. What do I need to do once I sell as far as my taxes go?

2. I have several items that I will be donating to the Goodwill or other providers. What do I do for those things?

3. What about any home improvements/ maintenance that was done on my home in 2013? How do I do deductions for that?

4. Any other tips on things I may be forgetting?

This was an unexpected closing and want to be sure I have everything in order.

Thanks Tom!

[TomCopeland]

Going out of business

1) If you sell the items in 2013 at a loss, you can report the loss on your taxes. If you sell them at a profit, you must pay taxes on the profit. This is a complicated issues because you have to take into account the amounts you have previously deducted as a business expense for your business. I've described this in detail in my book Family Child Care Tax Workbook and Organizer.
2) This is also complicated. If you've already fully deduct these items as a business expense, you can't claim any charitable contribution. If you've been depreciating them, you must take the depreciation into account to determine if there is any value left over that you can take as a charitable contribution. For example, let's say you purchased an item for $200 and took $150 worth of depreciation. If the value of the item at the time you donated it was worth $200, you can claim a charitable contribution of $50. It it's worth $100, you can't claim any contribution.
3) Once you end your business you can no longer claim any depreciation for your home improvements. You will get a small amount of a deduction in 2013.
4) If you used the Section 179 rule on items you purchased in earlier years, and the normal depreciation period has not expired, you must report some of the amount you deducted as income. This issue is also explained in detail in my book Family Child Care Tax Workbook and Organizer. There is a chapter in the book about going out of business.

[Unregistered]

I will get your workbook to help with these issues.

So for #1, I am confused. Let's say I have a playhouse. I bought it 5 years ago for $200 and claimed it under 179. I sold it for $75 this year. What's the tax implication?

[TomCopeland]

Section 179

I will get your workbook to help with these issues.

So for #1, I am confused. Let's say I have a playhouse. I bought it 5 years ago for $200 and claimed it under 179. I sold it for $75 this year. What's the tax implication?

I will assume that you used the playhouse 100% for your business. Normally a playhouse gets depreciated over 7 years. Since you didn't use it more than 50% of the time in your business for 7 years, you must recapture some of the deduction in 2013. The way you figure this out is to calculate how much depreciation you would have claimed had you depreciated it, instead of taking the Section 179 rule. In 5 years you would have claimed 77.68% of the $200 or $156. You now must report the difference as income in 2013 ($200 - $156 = $44).

[Unregistered]

OK so that covers the depreciation. What about the $75 I sold it for???

[TomCopeland]

Depreciation

$75 - $44 = $31. This is the amount you report as income. You don't do anything else with the $75.

[Unregistered]

What paper work do I need to have and is it really necessary to report it? It isn't much.

I donated boxes full of things. What do I need for those deductions?

[TomCopeland]

What paper work do I need to have and is it really necessary to report it? It isn't much.

I donated boxes full of things. What do I need for those deductions?

You should have a record of how much you paid for the item and how much you sold it for. The taxes due on $31 is minor. It's up to you what to do about this.

For items you donated, you should have a receipt from the place you donated it to. Taking pictures of these items before you donated them would be good.

[Unregistered]

Sorry I should have clarified. The things I donated were day care items that I had already claimed as deductions. So can I get anything when I donate them/

[TomCopeland]

donations

Sorry I should have clarified. The things I donated were day care items that I had already claimed as deductions. So can I get anything when I donate them/

No, you can't claim any charitable contributions for items that have been fully deducted as a business expense.