COPYRIGHTED MATERIAL How to Use This Book 5 • Providers can claim a higher business-use percentage of their home if they have one or more rooms that are used exclusively in their business. The tax preparer should add the Space percentage of this exclusive-use area to the Time-Space percentage of the rest of the home to determine the total business-use percentage of the home. (See chapter 1.) • When counting the number of hours the home is used for business, include the num­ ber of hours that the children in the provider’s care are present as well as the number of hours that the provider spends on business activities when the children are not present. These hours include the time the provider spends cleaning, preparing activi­ ties, interviewing parents, keeping records, and preparing meals. (See chapter 1.) • Reimbursements from the Child and Adult Care Food Program (CACFP) are taxable income to the provider. Reimbursements for the provider’s own child (if the pro­ vider is income-eligible) are not taxable income. Providers are entitled to deduct all the food that they serve to the children in their care, even if their food expenses are greater than their Food Program reimbursements. (See chapter 4.) • Providers who are not licensed or registered under their state law are still entitled to claim their home expenses as business use if they have applied for a license or are exempt from local regulations. (See page 6.) • All providers are better off financially if they claim depreciation on their home as a business expense. When a provider sells her home, she will have to pay a tax on any depreciation that she claims (or was entitled to claim) after May 6, 1997. She will owe this tax even if she hasn’t claimed any home depreciation as a business deduction. (See chapter 12.) • Providers who use their home for business can avoid paying taxes on the profit on the sale of the home if they have owned the home and lived in it for at least two of the last five years before the sale. (See chapter 12 and the Record-Keeping Guide.) • Providers are entitled to claim depreciation on any property that is used in their busi­ ness, including the home or home improvements; a computer, TV, VCR, DVD player, washer, dryer, refrigerator, sofa, or bed; and many other types of property. Many tax preparers have avoided calculating these depreciation deductions because of the small amounts involved; however, tax preparers should take another look at claiming depre­ ciation, since IRS Revenue Procedure 2002–9 states that all previously unclaimed depreciation can now be deducted in the current year. This can mean hundreds of dollars in deductions for providers who have been in business for a number of years. (See chapter 10.) If You File Electronically If you will be filing your tax return electronically (or if your tax preparer will be doing so), be sure to keep paper copies of all your backup documentation, such as your depre­ ciation schedules, the calculations for your Time-Space percentage, and your mileage records. The electronic documents can get lost, and you will need paper copies to provide evidence that your numbers are accurate if you are ever audited. COPYRIGHTED MATERIAL