Daycare Start-up Inventory

Take inventory.  When you start daycare, you should inventory everything in all of the rooms that children will be in or will otherwise be used for daycare.  It may be helpful to have somebody else assist you.  I think it’s easiest to use a notebook, but you can also buy the Inventory Keeper.  This is a list of items that are used in your business.  This may include furniture, pictures, toys, electronics, games, movies, bedding, etc.  The kitchen may include pots, pans, small appliances, utensils, plates, Tupperware, etc.  Don’t forget large items like your clothes washer and dryer and extra freezer (if you use them for daycare).  If possible, try to sort it by room.  Do not include items attached to the house, such as cupboards and built in appliances.  Include the item description, original cost and purchase date (if you know it), the fair market value, and what percentage it will be used for business.

We then need it sorted into 4 categories:

  1. Items with a Fair Market Value of $200 or less and used 100% for business.  Add everything up.
  2. Items with a Fair Market Value of $200 or less and used partially for business.  Add everything up.
  3. Items with a Fair Market Value of more than $200 used 100% for business.  Keep each item separate.
  4. Items with a Fair Market Value of more than $200 and used partially for business.  Keep each item separate.

Fair market value. The fair market value means how much it’s worth now.  If you bought or sold it at a garage sale or thrift store, how much would it cost?  Do your research and make a good estimate.

Although not ideal, one method would be to use the original cost and purchase date, and then subtract one seventh or more of the original cost each year.  For example, if you bought a couch two years ago for $700, you could subtract two-sevenths, or $200.  That would make the fair market value of about $500.

Percentage used for business. Most items will be your time/space percentage.  Some items, including everything in exclusive use daycare areas, will be 100%.  For example, if you have a play room that is ONLY used for daycare, everything in that room will be 100% daycare use.  Another example is if you have toys or other objects that are ONLY used by your daycare children, and NEVER by your family.  You can also use an actual business percentage if neither of the above seems appropriate.

Decorative items. You may or may not want to include the above information for decorative items such as plants, paintings, clocks, and mirrors.  These are not used directly for business activities; however they contribute to a warmer home-like environment.  Depending on how assertive you want to be, you probably want to at least include some of these items.  Even if you don’t decide to claim them, I suggest that you still inventory the items with the rest of your house.

Your home. You also are able to depreciate your home.  Generally, this means the original purchase price of your home, minus the value of the land, plus home improvements prior to starting daycare.  For example, lets say you bought your home for $150,000 and the land value was $50,000.  Prior to starting daycare, you installed a new roof for $3000 and a new furnace for $5000.  You could depreciate $108,000.  However, if the current fair market value of you home is now LESS than this number, you need to use the current fair market value of your home.

Start-up Supplies. These are items that you bought that would normally be deducted as an expense, but were purchased PRIOR to, and in anticipation of,  starting your business.  Keep this amount separate from your start-up inventory and your normal supply expenses.