Filing daycare taxes can be a daunting process, especially for a new daycare business owner. So we enlisted the help of Tom Copeland, tax and child care business specialist, and author of the 2010 Family Child Care Tax Workbook and Organizer, to answer those tough tax questions and provide helpful daycare tax tips.
OwnADaycare: An OwnADaycare reader asks: “I have a business credit card that I usually purchase items for daycare on, but if I put it on my personal card from time to time, if I am ever audited will that hold up if i claim it on my “business” taxes even if it’s on a “personal account” receipt?”.
Tom Copeland: You can buy things for your business from a personal or business credit card or checking account. It doesn’t matter. You are not required to keep separate credit cards or checking accounts. If you are audited the IRS will look at both your personal and business accounts.
OwnADaycare: What are the best categories for “receipt breakdown”? Business Supplies, Vehicles, Toys, Safety Supplies, Food, etc.
Tom Copeland: IRS Form Schedule C has a list of expense categories where you can report your business expenses. There is also line 27 (Other Expenses) on the back of the form with a number of blank lines where you can enter expenses in categories you choose. It doesn’t matter what you call something or what business category you put it under because it all gets added together on your tax forms. In my book Family Child Care Record Keeping Guide I list over 1,000 allowable deductions and what expense category you can put them under. I listed five expense categories under Other Expenses on Schedule C: food, toys, cleaning supplies, activity supplies, and household items.
OwnADaycare: How does a daycare business owner claim mileage (to the grocery store, etc) if he or she wasn’t so great at writing it down each time they went?
Tom Copeland: You can keep a record of business trips in many ways: save the receipt, bank deposit slip, cancelled check, credit/debit card statement, calendar notation (“park”, “school”, “library”, “grocery store”), photograph (kids in the park), field trip permission form, etc.
OwnADaycare: Can non-registered daycares still get deductions and which ones??
Tom Copeland: If a child care provider is not in violation of state child care laws she can claim all the same business expenses as a licensed provider. If a child care provider is in violation of state child care laws she can claim all the same expenses as a licensed provider, with the exception of house expenses that appear on Form 8829 (property tax, mortgage interest, utilities, house insurance, house repairs, house depreciation). So, if the state law says a provider can care for up to 3 children without a license and a provider cares for 2 children she is exempt from the law and is not violating it. She can deduct all the same expenses as if she was licensed.
OwnADaycare: Can daycare owners claim bad debts on their taxes when parents don’t pay all they owe? Is it true that they can’t claim those situations as bad debts because they never claimed the owed money as income?
Tom Copeland: Child care providers cannot deduct as a business expense the amount owed by a parent. Instead, the provider should report only the income she received. Therefore, if a parent left owing $500 the provider doesn’t report this as income. As a result, she has less income to report and will pay less in taxes. A bad debt occurs in this situation: A parent pays a provider $500 in December 2010. The provider reports this as income on her 2010 taxes. In January 2011 the check bounces. The provider has a bad debt of $500 and can report this as a business expense in 2011. This will probably never happen.
You can keep up with family child care tax and business issues on Tom Copeland’s blog.
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