Chapter OR Basics of DOUBLE TAP TO ZOOM WITH PHONE One: The TABLET Record Keeping year. If you go out of business within the stipulated time frame, you can take the rest of the depreciation in the year that you quit. Sometimes receiving a grant can create an unplanned tax burden in the year that you receive it. For example, if you receive a $2,000 grant and use it to purchase an egress window, you must depreciate it as a home improvement over 39 years, which means that you will be entitled to about a $50 deduction each year for 39 years. However, you will have to pay tax on the entire $2,000 in the first year. If you go out of business after ten years, you will lose the depre- ciation for the additional 29 years. Grants are a great way to get educational items, play equipment, or other resources to help improve the quality of your business—don’t pass up these opportunities. While you may end up paying more in taxes, the grant will provide you and the children in your care with worth- while benefits. Loans A loan you receive for any personal or business purpose is not taxable income to you. You may deduct any items that you purchase with loaned funds if you use them in your business, using the normal rules of deductions (see chapter 4). Some loans to family child care provid- ers to buy business equipment are structured so that if you stay in business for two years, the loan is forgiven and you don’t have to pay it back. When a loan is forgiven, it becomes a grant, and you will need to report it as income in that tax year. Military Housing Allowances There are many child care providers across the country whose spouses work for the U.S. military, and the military offers housing allowances to its personnel based on rank and loca- tion—the BAQ (Basic Allowance for Quarters) and VHA (Variable Housing Allowance). These housing allowances are not taxable income to a military family. However, if your family is in the military and you are operating a family child care business, you will need to understand how these allowances affect your business and your business deductions. 1. If Your Family Is Living on a Military Base The military has its own set of licensing standards that you must meet before you can oper- ate a family child care business on a military base, and these standards supersede any local or state rules and regulations. If you live on base, the housing allowances will be applied toward your living quarters, and your family will pay nothing for housing except telephone costs. Because of this, you aren’t allowed to claim as a business expense any house expenses that are covered by the housing allowance, such as rent, utilities, insurance, repairs, deprecia- tion, property tax, or mortgage interest. You can claim part of certain other expenses as busi- ness deductions if they aren’t covered by the housing allowance: insurance or local taxes on personal property, house repairs, home improvements, and any other business expenses that you pay directly. COPYRIGHTED MATERIAL 15