Realistically, How Much?

[jenboo]

My husband is thinking of joining me at our home daycare. I'm trying to estimate our potential income to see if it will be worth it.
I'm trying to estimate how much we need to withhold realistically for taxes. I tried filling out some forms from the IRS but even the instructions, I am completely lost.
Currently, I set aside 10%, my husband withholds the amount for 0 dependents at work a we have one child. We also have a refund.

I know there isn't a way to know for sure, but if we use about 90% of our house for daycare, have one child and deduct everything we can, how much should be realistically set aside for taxes? Do we really need to set aside 30% or should 10-15% be enough?

[Michael]

Writing off 90% of your home is going to hit you if you ever sell your house. I usually put aside 30%. Then, hope my accountant will figure out the proper deductions.

[jenboo]

Writing off 90% of your home is going to hit you if you ever sell your house. I usually put aside 30%. Then, hope my accountant will figure out the proper deductions.

What do you mean by this?

[Michael]

What do you mean by this?

I am not an accountant or CPA. I take my CPA's advice. Maybe Tom Copeland can explain more.

I was told by my accountant that when I write off a percentage of my home for business, this break is subject to a "recapture" restriction designed to prevent a double benefit on capital gains.

http://homebuying.about.com/od/marketfactstrends/qt/SelfEmpResSale.htm

When you say that you write off 90% of your home for business, I think you mean you use a time/percentage calculation?

To be able to write off some part of the housing expenses for working at home, the work area has to be used exclusively as your principal place of business, where you work, administer your business, or meet or with clients or customers. The only exception to this is if you use part of home as a daycare facility and you also use that area for daily use. In that case you can write off the percentage of time the area is used for daycare.

http://homeguides.sfgate.com/can-deduct-mortgage-payments-home-business-61331.html

[jenboo]

I am not an accountant or CPA. I take my CPA's advice. Maybe Tom Copeland can explain more.

I was told by my accountant that when I write off a percentage of my home for business, this break is subject to a "recapture" restriction designed to prevent a double benefit on capital gains.

http://homebuying.about.com/od/marketfactstrends/qt/SelfEmpResSale.htm

When you say that you write off 90% of your home for business, I think you mean you use a time/percentage calculation?

To be able to write off some part of the housing expenses for working at home, the work area has to be used exclusively as your principal place of business, where you work, administer your business, or meet or with clients or customers. The only exception to this is if you use part of home as a daycare facility and you also use that area for daily use. In that case you can write off the percentage of time the area is used for daycare.

http://homeguides.sfgate.com/can-ded...ess-61331.html

yes I was referring to the time/space. I use almost my entire house which will increase the amount I get to deduct for stuff once I figure out my time/space %

[MyAngels]

If you've been in business for any length of time it should be relatively easy to do a projection based on what you expect to gross from the daycare and past expenses.

Once you've figured out a projected net business income you can apply your exemptions and deductions to figure out a projected income tax figure (don't forget self-employment taxes). That should give you an approximate amount that you'll need to withhold for the year.

As far as a percentage goes, I generally withhold 25%, but that's because my husband's employer invariably under-withholds even though we have it set to S-0 (never have figured out why they can't do the calculation ).

[jenboo]

If you've been in business for any length of time it should be relatively easy to do a projection based on what you expect to gross from the daycare and past expenses.

Once you've figured out a projected net business income you can apply your exemptions and deductions to figure out a projected income tax figure (don't forget self-employment taxes). That should give you an approximate amount that you'll need to withhold for the year.

As far as a percentage goes, I generally withhold 25%, but that's because my husband's employer invariably under-withholds even though we have it set to S-0 (never have figured out why they can't do the calculation ).

I had a home daycare for 1.5 years then moved and opened up this one just a couple months ago... So I'm not sure about past expenses because this one is way different than my last.

[TomCopeland]

hiring husband

My husband is thinking of joining me at our home daycare. I'm trying to estimate our potential income to see if it will be worth it.
I'm trying to estimate how much we need to withhold realistically for taxes. I tried filling out some forms from the IRS but even the instructions, I am completely lost.
Currently, I set aside 10%, my husband withholds the amount for 0 dependents at work a we have one child. We also have a refund.

I know there isn't a way to know for sure, but if we use about 90% of our house for daycare, have one child and deduct everything we can, how much should be realistically set aside for taxes? Do we really need to set aside 30% or should 10-15% be enough?

Hiring your husband won't save you any money on your taxes. He can work for you for free. You will owe 15% Social Security/Medicare taxes, plus federal and state income taxes on your profit. How much actual tax that will be depends on your family's income and personal circumstances (number of children, medical expenses, etc.). A rough rule of thumb is to set aside 30% of your income to cover you for your federal taxes.

[TomCopeland]

time-space %

yes I was referring to the time/space. I use almost my entire house which will increase the amount I get to deduct for stuff once I figure out my time/space %

You want to claim as high a time-space % as you can when you use your home for your business. This will increase your house deductions and help lower your taxes. Most providers have a time % of 90-100%. Most providers have a time-space % of between 34-45%.

When you sell your home you will owe taxes on the depreciation you claimed, or were entitled to claim, while using your home for your business. Do not keep your time-space % low to reduce this tax. The tax benefit of a higher time-space % will always outweigh the taxes when you sell your home.

[jenboo]

Hiring your husband won't save you any money on your taxes. He can work for you for free. You will owe 15% Social Security/Medicare taxes, plus federal and state income taxes on your profit. How much actual tax that will be depends on your family's income and personal circumstances (number of children, medical expenses, etc.). A rough rule of thumb is to set aside 30% of your income to cover you for your federal taxes.

We are just trying to figure out financially if it's better for him to work at the Daycare with me and expand our license, or if he should continue to work outside the house.
I wish taxes weren't so much.

[TomCopeland]

hiring husband

We are just trying to figure out financially if it's better for him to work at the Daycare with me and expand our license, or if he should continue to work outside the house.
I wish taxes weren't so much.

As a general rule of thumb, you will only make more money hiring a full time helper if you are able to care for at least 3 more full time children.

[jenboo]

As a general rule of thumb, you will only make more money hiring a full time helper if you are able to care for at least 3 more full time children.

The good news is that we can take on 5 more full time.
Our net just won't be as much as we were expecting... It's still a couple 100 more than what Dh brings home now. He just has to decide it working with me and kids everyday is worth the small increase ::