Tax Tips
Since the field of tax preparation is constantly evolving, and laws affecting your tax liability are ever-changing...check back here often for important updates. If you have a specific tax question about the In-Home Day Care profession, please drop us a line via email and we'll try to get an answer or point you in the right direction.Your tax appointment
Being properly prepared for your tax appointment will, in most cases, save you time and money. Here are a few tips that may help:- Many accountants and tax preparers will provide you with an "organizer" or "data collection sheet" to help you gather and arrange your records. This method not only assists your preparer, but also may jog your memory as to overlooked deductions, for which you may be entitled a deduction. Additionally, a space for your signature affirming that you have the required written documentation for specific deduction is provided. Be sure to bring the "organizer" or "data collection sheet" with you.
- Always include the label pages or postcard labels received from the IRS, your state, and city or local governments. These labels assist in the timely processing of your returns by these agencies.
- Be sure to bring all W-2 forms received. If you did not receive a W-2, by January 31st of the new year, contact your employer.
- If you are required to pay estimated taxes, be sure to bring all forms and envelopes from the IRS, your state, and city or local governments.
- Include all partnership, joint ventures, S corporations, estate or trust documents in which you may be a member.
- Bring all forms 1099 which indicate dividend, interest, rental, non-employee compensation, prizes, awards, etc.
- Bring a copy of all buy/sell statements and other documentation that provides your "basis" in stock, real-estate transactions and installment sales.
- Bring a copy of all sales contracts to determine finance charges that may have been levied.
- If you are a new client to a preparer, you should provide a copy of at least the last two year's tax returns. (Consult your preparer for specific requirements.)
- If you had household employees, and you were required to file payroll reports for them, be sure to indicate this to your preparer.
- Indicate in some fashion if you had received disability income at any point during the tax year.
- If you were audited by the IRS, your state, and city or local government, this should be indicated, and the results provided.
- If you have specific questions for your preparer, be sure to list them and bring them along.
Please Note:
The following reference material presented by The Gallagher Group, LLC is designed to assist Child Day Care Providers by providing accurate and current information in regard to the subject matter covered. However, The Gallagher Group, LLC does not have any responsibility if human error does exist. Accordingly, no assurance is given by The Gallagher Group, LLC that such information is comprehensive in its coverage of such subject matter. Information published or provided by The Gallagher Group, LLC should not be relied upon as a substitute for independent research to original sources of authority. If legal advise or other expert assistance is required, the services of a competent professional should be sought.In addition to watching children, what other activities could increase the hours used for my time-space calculations?
A. You should keep an accurate log (as provided with DataCare® ) of the following activities:
- The hours from the time the first child arrived to the time the last child departed.
- Clean up for business before and after children are in your home.
- The time spent cooking for day care children.
- The time you take in preparing the children's activities.
- Interviewing or speaking to the children's parents on the phone.
- Business record keeping and your tax preparation.
- Planning ad preparing shopping lists for day care meals.
- Filling out paper work for Government agencies.
Note however that if you are caring for children while performing any of the above items, the time may not be counted twice. In addition DO NOT count hours spent away from home such as shopping or transporting activities.
What are some common subjects of an IRS audit?A. Common subjects of audits are:
- Food expenses - The IRS often denies deductions in excess of CACFP reimbursements.
- Time-Space percentage - The IRS often does not allow time spent on business activities when children are not present
- Shared business and personal expenses - The IRS may claim that some business expenses are really personal. In particular...household supplies and repairs.
- Automobile mileage - The IRS may deny deductions for business trips to the grocery store.
A. The IRS wants tax payments submitted throughout the year. There is a penalty if you haven't paid in at least 110% of your previous year's tax liability or, 90% of the total taxes your family owes throughout the year. Estimated taxes are based on the estimated income and expenses for the year. Taxes owed include self-employment tax. If the provider is married and filing a joint return, look at the total taxes owed by the family. One-fourth of your estimated taxes must be paid each quarter. File Form 1040ES for these taxes. Your State may also require and have specific requirements for the payment of estimated taxes.
What expenses can I deduct?A. DataCare® was designed to accurately track this information for you, and by using a predefined list of expense categories, eliminate much of the worry of what, and how-much is deductible. Generally, expenses fall into one of three major categories. They are:
Direct Expenses
are expenses that are incurred specifically for use by the business.
Direct expenses are usually claimed 100% in one year. If a direct
expense is used for both business and personal purposes, providers
may determine the business deduction by applying their Time-Space
percentage or an actual business use percent. The Time-Space percentage
should not be applied to food expenses.
- Advertising
- Association dues and publications
- Bank service charges
- Business interest expense
- Legal & Professional services
- Liability Insurance
- Office expenses
Indirect or Shared Expenses are expenses that are included for the purpose of maintaining your home. Indirect expenses are claimed 100% in one year unless the business limitation of home expenses requires a carry over to the next year. Indirect expenses are allocated between business and personal use by applying the Time-Space percentage.
Some examples are:
- Mortgage loan interest
- Real estate taxes
- House insurance
- Utilities: Gas, electric, water, etc.
Capital expenses that are incurred to purchase, improve or increase the value of property usually worth at least $100. Capital expenditures are usually deducted over a number of years by using pre-defined depreciation methods. Capital expenditures are allocated between business and personal use by applying the Time-Space percentage or an actual business use percent.
Some examples are:
- Personal computer
- TV,VCR, stereo, etc.
- Appliances
- Furniture
- Play equipment
A. DataCare®!!
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