Conference moira::parenting_v3

    First, the caveat that this is no substitute for professional advice...
    
    She can write off anything specifically connected with her
    business...food, toys used exclusively for daycare, a % of household
    expenses(rent or depreciation, electric, oil) corresponding to the % of
    house used exclusively for the business (ie a playroom devoted to the
    daycare would qualify--family room used at night by the family would
    not), advertising, books on childcare, computer used for paperwork,
    expenses of continuing childcare education, etc.
    
    The 15.3% corresponds to FICA, I think; she also has Federal and State
    (in Mass, anyway) income taxes to pay.  I'd have to know more about
    their specific situation to see if her income would push them up a
    bracket or not.  
    
    Susan

    
    
    
    First and foremost talk to the IRS.. You can call anonomously...
    Or go to a local office (there's one in downtown Nashua) and 
    pick up the self employment forms...
    
    You do have options rather than paying a lump sum at the end of the
    year.. You can pay quarterly.. The 15.3% is what we all love and
    know as FICA (Social Security)..  Normally you pay ~6.7%, and then
    your employer also pays the same.. Since you are your own employer,
    you pay them both...
    
    As for things that are deductible from what we were told by someone
    in the IRS office...
    
    	Part of the mortgage (/ Rent??  I am not 100% sure of Rent)
    
    	A percentage of: Food, diapers, toys, heat, electricity,... (Toys
    	is the best one, you figure you would most likely buy it anyways,
    	but since you have a daycare...)... 
    
    	Anything you spend that you normally wouldn't spend if you weren't
    	at home.. Think about it...
    
    	You *MUST* keep receipts...
    
    	If you provide a pickup/drop off service, then gas and 'wear and
    	tear' on the car...
    
    
    A question you can ask yourself, do you know anyone who is self
    employed (sub-contracters are the best bet here).. 
    
    
    From what the IRS told us, is that considering all that can be written
    off it is better to pay everything at the end of the year and keep
    the interest on the money made...
    
    
    
    4000 * 15.3% = $612   / 12 = $51 /month
    
    
    It shouldn't be too difficult to find $50/month from any of the above
    sources...
    
    
    
    John
    

    Paying quarterly or annually isn't an option, as mentioned in the
    previous note...
    
    Just as when you're employed, you have taxes withheld, when you're
    self-employed you pay taxes quarterly.  If you've underpaid at tax
    time, there are penalties which more than offset any benefit you get
    from "holding on " to the money.  You need to have paid 90% of the
    taxes due, or 100% of your previous year's tax, in order to avoid a
    penalty.  Rather than filing estimates, you can increase the employed
    spouse's withholdings, if that's easier.
    
    Get competent professional advice.  The IRS will give you advice, but
    it can be wrong.  If its wrong, and you follow it, you are on the
    hook--relying on their advice, is no excuse.  This may sound
    unbelievable, but its true.  The IRS office is a good starting point,
    but it is no substitue for competant professional advice.
    
    Susan

    RE: .0
    
    Having just gone through this (ended up giving Mega-Bucks to Uncle
    Billy Weld in Ma...)  There are a number of things to consider:
    
    1) Deductible expenses include:
    	a) A portion of real estate Taxes paid on home,
    	b) A portion of heating expense
    	c) A portion of all other utilities
    	d) All food provided to those in your care
    	e) Any toys purchased for the business
    	f) Craft supplies
    	g) Insurance payments (for provider coverage)
    	h) A portion of the home insurance payment
    	i) A portion of the mortgage interest
    
    2) You must keep detailed and accurate records.
    
    3) All references to "a portion" in 1, refer to the percentage of the
    	square footage of the home used for daycare. Note: Family daycare
    	is one of two exceptions to the IRS exclusive use rule.  In other
    	words,  the IRS usually requires that any portion of the home used
    	for a business and deducted as such must be used ONLY for the
    	business.  Since daycare requires the use of the kitchen (for
    	snacks and meals), this rule does not apply.
    
    4) The reference to "self-employment tax" does refer to Social
    	Security.  It is at the 15.2% rate because being self-employed, you
    	must pay as both the employee and employer.
    
    5) Please see an accountant as there are specific requirements and
    	rules to follow in filling out the forms. (e.g. the square footage
    	calculation must be done according to IRS rules.)
    
    Feel free to contact me directly if you have any other questions,
    
    Dan

    Check out the options on deducting the mortgage.  I was told that
    if you deduct now, you'll pay when you sell.  Something about business
    prop.  I chose no to deduct.  The IRS is getting their tax bucks out
    of this "business" by making people, who use the child care tax
    deduction, put the providers social security numbers on thier forms.
    It will lead to an increase in daycare expences.  However if you make
    money the gov want some.  The problem with at home daycare is the
    deductions are minimum if you've been at it a while.  
    You have to pay taxes quarterly unless your spouse pays more than
    their fare share.  If you don't owe more than a couple hundred $$
    at the end of the year no problem.  That's the way we handled it.
    I payed taxes for the both of us from my check.  Filed jointly
    and it was a wash.
    Other options is to deduct the tax credit from the cost and have
    parents not use it.  Ok if everyone is trustworthy but say you
    provide care for 1/2 year and deduct tax credit amount now the parents
    use the amount they payed you and still get the credit.  double dippin'
    How much does the tax credit save a taxpayer??????
    The IRS's new short form:
    		How much did you make last year $_________
    
    		Send it in.
    TTFn
    Dave 

>    Check out the options on deducting the mortgage.  I was told that
 >   if you deduct now, you'll pay when you sell. 

The way you get around that, I am told, is to NOT deduct it THE YEAR YOU SELL.

    >Check out the options on deducting the mortgage.  I was told
    >that if you deduct now, you'll pay when you sell.
    
    Check this one out thoroughly before you act on it.  I was told
    the percentage you have to pay business profits on is directly
    related to how much you had ever claimed as a deduction.  So if
    you claimed 10% for 10 years and then none for 2 years, you'd pay 
    10* (.10*(selling price - purchase)/12) -- basically a pro-rated
    share of the profit for the number of years you used the property.  
    
    --bonnie

    RE: a few
    
    The deductions I mentioned in a previous note were for the use of a
    principle residence.  The rules I stated DO NOT APPLY to businesses in
    general.  Taking a portion of the mortgage as a business deduction is
    perfectly valid as that is part of the expense of providing a place in
    which to do business.  There is no penalty at sale time any more than
    deducting mortgage interest causes a tax liability when you sell your
    home normally.
    
    If you are speaking about a daycare center as a separate structure than
    you fall into a different category and different rules apply.
    
    Dan

    Just to clarify something from the last few...the "residence" deduction
    is not your mortgage, but depreciation...

    RE: .-1
    
    Actually re-reading what I wrote, I see the confusion.  Since the
    monthly mortgage is an expense of the house, a portion of the monthly
    interest for that payment is also deductible as a business expense. 
    Realize though, that the total dollar amount deducted from the entire
    return must not exceed the interest paid.  In other words, distribute
    the interest deduction between your standard itemization form (schedule
    B?) and the business (schedule C).  You will get better tax credit this
    way as your net business income will be less.  This will decrease the
    amount you must pay for self-employment tax.
    
    Also, a you can depreciate the value of the home.  My accountant
    started this.  I was unaware that this could be done.  It saved me over
    $500 in taxes this year.
    
    Dan

    re: .10
    
    I know this is a bit late, but...
    
    >Also, a you can depreciate the value of the home.  My accountant
    >started this.  I was unaware that this could be done.  It saved me over
    >$500 in taxes this year.
    
    Usually, when you sell your primary residence, you have 2 years to
    re-invest the profit (capital gain) on the sale in another home or, you
    must pay a capital gains tax on the profit.  If you depreciate a
    portion of you house as a business expense, you must pay the capital
    gains tax on that portion of your profits when you sell.  For example,
    let's say that you had a $50,000 profit on the sale of your home and
    you had depreciated 25% of your home as a business expense.  You will
    be required to pay a capital gains tax on 25% of $50,000 ($12,500). 
    This amount may (I don't know) be prorated, or otherwise limited, but
    the point is you WILL pay a capital gains tax on a portion of your
    profit.  This is one of the main reasons why people don't depreciate
    part of their house.
    
    Of course, the way real estate values are going in some parts of the
    country, there may be no profit.
    
    As stated in earlier replies, get help from a competent tax advisor.
    
    Bob