G. General purpose tools/machinery/equipment = 7-year 200% DB
H. Land improvements = 15-year 200% DB
I. Computer software = 3-year 200% DB
• Eventually the software will tell you the depreciation deduction for each business asset. If
you doubt the answer’s accuracy, you can go back and review what you entered on each
screen. However, if you do this, the software will revert to listing your asset as 100% busi
ness use unless you reenter your proper percentage. So remember to reenter your percent
age. If you know that the depreciation deduction listed by the software is incorrect and
you are frustrated in trying to correct it, leave the depreciation section, and then reenter it.
• Meals and Entertainment: 50% Limit refers to meals served to the parents of the children
in your care or meals you eat away from home. Don’t put food served to children here.
Using H&R Block at Home
I reviewed the free edition of H&R Block at Home (www.hrblock.com/taxes). There are also
more expensive versions: deluxe and premium. In addition to the drawbacks cited above, here
are some additional things to watch for:
• Like TurboTax, H&R Block’s explanation for claiming depreciation is hard to follow.
When you depreciate an item, a screen will ask for your business-use percentage. The soft
ware makes it extremely difficult to use your Time-Space percentage because you can’t see
what your percentage is until you have filled out all your tax forms and are ready to file
your taxes. Only then can you see your percentage entered onto Form 8829. So you must
enter all other information for your taxes and then go back to the depreciation section to
enter your Time-Space percentage.
• When the screen appears that says Vehicles and Depreciable Assets, this is the section in
which to enter all items you are depreciating, including your home. There is no special
section to cover home depreciation, so you might otherwise miss this. You also enter your
car expenses here, even though you may be using the standard mileage rate method.
• When depreciating your home, identify it as nonresidential real estate not as a component
of nonresidential real estate.
• The screen Basic Depreciation Information asks you to choose between Depreciation and
a Home Office. If you click on a Home Office, the software will assume that the item you
are depreciating is used 100% for your business. If you are depreciating a home improve
ment (a new furnace or new roof, for example) that is used for both business and personal
use, choose Depreciation.
• The Method screen gives you the choice of ADS MACRS, Straight Line, 5 Years, or Force
the Use of a Specific Amount. If you choose the first, it will use the straight-line deprecia
tion rules rather than allowing you to use accelerated rules. I haven’t been able to figure out
how to get the software to use accelerated rules. If you deselect Force the Use of a Specific
Amount, you can enter the correct depreciation amount if you can calculate it on your own.
Unlike the software, a tax professional familiar with the special rules for your business
should be able to help you with all of the above issues. Because of these and other weak
nesses (software programs can contain errors), I don’t recommend that you use tax prepara
tion software unless you already have a good understanding of all the tax rules for family
child care businesses. (If you do use tax software, be sure to read the Record-Keeping Guide
to identify all the allowable deductions for your business and the current Tax Workbook and
Organizer to make sure that you are following the latest tax rules.)