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, to answer tough tax questions and provide helpful daycare tax tips.
Question: I just started and this past year I was finally able to write myself a check. I was able to benefit from a grant to purchase equipment. What are those two entries supposed to look like?
Tom Copeland: Ignore the check you wrote to yourself. That is called a “draw” but you don’t put the amount anywhere on your tax forms. Report the grant as income on Schedule C. Then report the equipment as a business expense, using the normal rules of claiming expenses.
Question: We usually do Turbo Tax for home business. It will ask if we want to depreciate our home. What does this mean and would they recommend it??
Tom Copeland: You always, always want to depreciate your home! It represents a substantial deduction that will reduce your taxes. When you sell your home you must pay some tax on the depreciation you claimed. However, if you don’t claim the depreciation, you will still have to pay tax on the amount you were entitled to claim. Therefore, you are always better off claiming the depreciation.
Question: I started my family home daycare in Sept 11 as a sole proprietor. I usually prepare my own taxes, married, file separate and itemize. I had an employee for a month. How would I file now (status, use what forms and such)?
Tom Copeland: You should continue to operate as a sole proprietor, even when you have an employee. In general, most providers are better off if they file jointly, but you can check to see which method is better for you.
Question: Should my husband and I file separately because I will have to file business taxes?
Tom Copeland: No. Fill out your business tax forms and enter your profit from Schedule C onto your joint Form 1040. You will almost always come out better filing jointly.
Question: I get worried each year that I always take a loss- How many years can you do this before the IRS says u have to make a profit? I legally use the items for daycare and spend as much as I make in the long run.
Tom Copeland: If you don’t show a profit at least 3 out of every 5 years, you are more likely to get audited. I would try to meet this goal, even if the profit is very small.
Question: I’m not licensed so I am watching one baby right now, can the mom claim me and if so how can I be sure how much will be taken from me?
Tom Copeland: The mother can claim the child care tax credit with the amount she paid you. You don’t need to be licensed for her to claim this credit. You need to report the money you earned as income on Schedule C. You will owe about 20-30% federal tax on the money you earned.
Question: What is the meal allowance breakdown for breakfast, lunch and snacks for tax prep?
Tom Copeland: The standard meal allowance rate for 2011 is $1.19 breakfast, $2.22 lunch/supper and $.66 snack. The rate for 2012 is $1.24 breakfast, $2.32 lunch/supper and $.69 snack.
Question: Any suggestions of computer programs to use in my in-home daycare to bill/invoice parents and keep track of my expenses for tax purposes?
Tom Copeland: The best record keeping program for family child care providers is Minute Menu (www.minutemenu.com). It’s an online program you can use for 30 days for free to try it out.
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