It's Deductible! Why Shouldn't I Buy It?

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For years I have given workshops and written books encouraging family child are providers to claim as many expenses as business deductions as possible.

My book, Family Child Care Record Keeping Guide, lists over 1,000 allowable deductions!

But should you buy something just so you can deduct it and thus reduce your taxes? No!

Here's why. Let's say you have just earned $100 and you want to buy $100 worth of toys for the children in your care. Your own children are grown so you will be able to claim a $100 business deduction with this purchase. What will be the tax consequence? Depending on your family's income, for every $100 of  business profit you earn you will owe about $30-$40 in taxes.

Let's use the higher tax rate of 40%. This means by claiming a $100 business deduction you will reduce your taxes by about $40.In summary: You are spending $100 to receive a $40 tax break. Is this a good deal? No way.

Some providers focus solely on trying to reduce their taxes. Instead, think about how much money you will have after you pay your taxes. If you bought the toys you would have $60 less in your pocket ($100 spent - $40 tax refund = $60 spent).If you didn't spend the $100 and paid 40% tax on this income you would still have $60 in your pocket. More money in your pocket is better than paying lower taxes!

If you need to buy something for your business then be sure to claim the tax deduction. But don't buy something simply to get a tax deduction.

Tom Copeland - www.tomcopelandblog.com

Image credit: studentweb.cortland.edu

For more information, see my book Family Child Care Record Keeping Guide.