In Business Yet?

Today TaxMama® hears from sh1207 in the TaxQuips Forum with this question. “In 2011, my wife started a home-run Montessori school in October. We spent about $2,000 in setting up the Montessori (supplies, furniture, license, etc.). We only got $600 in income from one child, who was with us for 3 hrs a day starting October. Can we deduct these expenses and the utilities?”

 Dear SH,

It sounds as if you’re in business to me. Your doors were open and you had one student.

Hopefully, you’re doing much better by now…a couple of months later. If not, be patient – and be sure to do some marketing and get the word out. Well-run Montessori schools tend to be quite popular, to the point of having waiting lists, in certain communities.

As to the tax issues, there are a lot of deductions you can take.

In fact, there are special ways to deduct the ‘office-in-home’ expenses when you run a school. The deduction is based on a combination of the time used for the school for the shared areas of the house, and the area of the exclusive areas of the house and yard.

If you are going to prepare your own tax return, read the instructions for Form 8829 very carefully. IRS has a special area on their web site for Child Care providers. The tax issues will be similar for home-based schools.

Brigette Thompson developed a record-keeping system that might help you, if Montessori hasn’t provided one. This should help you get started.

And remember, you can find answers to all kinds of questions about home-based businesses and other tax issues, free. Where? Where else? At www.TaxMama.com.

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5 thoughts on “In Business Yet?

  1. sh1207 says:

    I have one followup question regarding home run montessori. My wife took 4 courses in 2010 and 1 in 2011 to complete her montessori certification. She took these from the local community college. Can I be able to claim these tuition fees when I file for 2011? I didn’t claim this in 2010.

    Thanks Eva & Tom for your advice on this matter.

  2. Tom Copeland says:

    Yes, many family child care providers have exclusive use rooms. My comment was perhaps not clear in stating that your article only mentioned exclusive use, as if there was no regular use standard. Yes, providers can deduct expenses associated with an outdoor play area. My comment was about the fact that your use of the word “yard” was in the context of calculating the business use of the home. In that case, the square footage of the yard should not be included in the calculation.

    Love your work.

  3. TaxMama says:

    Hi Tom,

    Thanks SO much for the feedback.
    It’s good to see someone with your background.

    But, please re-read what I wrote.

    I have also worked with many child-care providers.
    And I have found that some DO have areas that are totally dedicted to the children.
    They are not used by the family.
    Those areas are computed at 100% business use.
    Other areas ARE shared with the family.
    Those areas are computed using the hours forumula.

    As to the yard?
    I have no problem supporting that area as a deduction.
    When a home-based child care facility has invested $10,000 -$20,000 or more to set up a specific, safe play area, for the children, I can and do pick that area up as business.
    I add it to the total home area, as a denominator and add it to the business area in the numerator.

    Hugs
    Eva

  4. Tom Copeland says:

    A daycare home has special rules to claim home office expenses. They don’t need to use rooms exclusively for their business, as your article states. They only need to use rooms “regularly” for their business. Also, the area of the yard is not counted as part of the square feet of the home.

    I’m a lawyer who has worked in the family child care field for 30 years. I’ve written 9 books on the business of family child care and represented numerous providers in IRS audits and Tax Court cases.
    http://www.tomcopelandblog.com

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