First Year Of Daycare...

[Abigail]

I thought I read somewhere that there is a $5,000 limit on deductions for startup costs in the first year? I have been accumulating a LOT of things to furnish half a house to use exclusively for daycare once we purchase it. I'm probably near the $5,000 value of all the items I've purchased over the last year and a half, but still have all the infant items like pack-n-plays/cribs, baby gates, exersaucers, bouncers, etc to purchase and know these will not be cheap either. Is there a limit?

Also, does this limit include all the depreciation of items like our fridge and lawnmower we still need to purchase and other basics for the house we need?

[TomCopeland]

Start up costs

Start-up costs are defined by the IRS as expenses you incur before your business began that would normally be deducted in one year, once your business does begin. So, this includes small toys, supplies, training classes, and other items that generally cost less than $100 individually. The limit on the amount of items you could claim as start up costs were $5,000 before 2010, but were raised to $10,000 in 2010. We don't have the final word for 2011, but it looks like the limit will remain at $10,000.

If you buy items before your business begins that cost individually more than $100 (furniture, appliances, play equipment, etc.) you can depreciate them under the normal rules of depreciation once your business does begin.

[Abigail]

Wow, that is good news that it is now $10,000 because all the little things add up fast! If I buy a house that already has children's toys outside like a big swingset and sandbox how would I figure the cost of those items to claim since they came with the price of the house?

[TomCopeland]

expenses

You have a choice. Most providers would not break out the value of toys, etc and just depreciate it as part of the home (39 years).
You could list each item separately and estimate its value at the time you bought the home. Then you can depreciate the business portion of these items over 7 years.