Question for Anyone Who Has Ever Written off a Business

I agree with the previous poster. The fine print in the IRS guidelines do say that you need to have proper licenses. But, you don't always have to have one for "babysitting". I went to get one recently and they said I didn't need one. In fact, they said if I wanted to get licensed by the state, my city would make me go before the city planning during a monthly meeting and get permission.

I've done this for 26 years, never been audited and no one has ever asked me about licenses. Just make sure you count only what's reasonable and go to the website and download the publication that's about daycare from the IRS.

Malia, the standard business use of home rules don't apply in any way to daycare or preschool. That's why she needs to look up the space/time rules and how they apply.

A city business license is not something the IRS cares about. They just want their money. It is far simpler to incorporate as an S-corp (legalzoom.com can help you with this if you haven't already done it) - the tax rules are far more generous for corporations than they are for individuals (businesses are taxed on profits, individuals are taxed on income). However, even if you are not incorporated, you can still write off business expenses as an individual, as well as writing off a portion of your home expenses since you use your home for business purposes. What you need is a good CPA when it comes time to file taxes (not a bookkeeper, but an actual CPA since a CPA is legally responsible for the advice they give you). I have a great CPA if you'd like me to send you his info.

You will need to contact your local Vo-Tech too. They often have a program where they help small businesses get off the ground. We did this when we started a child care business. They were the ones who reminded me we needed to be registered in the state too, we had our federal tax id number and were doing those taxes already...

An attorney or CPA can also help you with getting yourself to LLC standing. That way if one of the kiddo's or parents get hurt and sue they can't take anything out of your personal items, such as your home, cars, etc....they will also be able to help you with any missed items you are not keeping track of. I know you can deduct a lot of your household expenses for the business. Anything they break, wear and tear on the house, paint, carpet/flooring, walls, tables and chairs, telephone, utilities, all kinds of things. They will help you with that too.

I agree with the others about talking to a CPA. I've had a home-based business for 11 years now and having a CPA's guidance has been critical.

Getting a business license is piece of cake. In CA, it varies whether you get it through your city or county, so check online. You just go to the licensing office, fill out a tiny form, pay a small fee and you're done. I think it took me maybe 10 minutes total and I just renew by mail every year. Even if you don't need the license for IRS purposes, it's the right thing to do.

I claim a small business, but it requires no space and the income is minimal. I would talk with a tax advisor, as others have suggested, since their fee will be deductible and it sounds like your business expenses are significant.

Some of the things the IRS will look at if they audit you will be the percent of your house that you are writing off, and whether or not that area is also used as a daily living area.... in your case, where you converted your garage into a business space, you would probably be ok.... you have to look at the square footage of your house vs the square footage of the "office" to claim other expenses, like heating, electricity, etc....

As far as writing off the expenses of converting the garage, you should be ok.... but to be safe, I would check with a tax advisor. That fee can also be used as a business expense.

When I was doing home party stuff, I always had a local person do my taxes... he put his fees down in the business expense stuff. I wasn't making real large claims, though....