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The Basics of Record Keeping |
by Tom Copeland
Income
- General Record Keeping Rules
- Keeping good records will save you money
- Review records monthly
- Save records for at least three years
- Three Step Process for Claiming Deductions
- One: Is it deductible?
- It is if it's “ordinary and necessary “ for your business
- Must keep “adequate records “ to support deduction
- Two: How much is deductible?
- 100% Business
- Shared (business and personal): use Time-Space Percentage
- Three: When can I deduct it?
- Less than $100: one year
- More than $100: depreciate
- Section 179 rule exception
- One: Is it deductible?
- Three Key Record Keeping Tips
- Save receipts for all expenses associated with your house
- Keep records of all meals and snacks served (including non-reimbursed meals and snacks)
- Track all the hours you work in your home
This handout was produced by Think Small (www.thinksmall.org).
For Tom’s entire publications visit: NAFCC Store (NAFCC members receive a discount)
Tom Copeland This email address is being protected from spambots. You need JavaScript enabled to view it. Phone: 801-886-2232 (ex 321)
Facebook - http://www.facebook.com/tomcopelandblog
Blog - http://www.tomcopelandblog.com
"Become a member of the National Associaton for Family Child Care, (http://www.nafcc.org/) and receive monthly business e-newsletters, discounts on books by Tom Copeland, IRS audit help, and much more."
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The Basics of Record Keeping Pretest/Posttest |
by Tom Copeland
Instructions: Before the workshop begins, please take a moment to answer the questions below in the first column, by circling your answer. At the end of the workshop answer the same questions again in the second column.
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Answer before workshop begins |
Answer after workshop begins |
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True(T) |
False(F) |
Don’t Know (DK) |
True(T) |
False(F) |
Don’t Know (DK) |
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| 1) | For every $10 of business expenses you deduct on your tax return you will save about $3-$4 in taxes | T | F | DK | T | F | DK |
| 2) |
You must save your business records for at least 7 years after filing your taxes |
T | F | DK | T | F | DK |
| 3) | You must report as income all money received from daycare parents | T | F | DK | T | F | DK |
| 4) |
Before you can claim a business expense you must have a receipt for it |
T | F | DK | T | F | DK |
| 5) | You can deduct a portion of the cost of a washer/dryer used in your business | T | F | DK | T | F | DK |
| 6) | You can count the hours spent cleaning your home before the daycare children arrive each morning | T | F | DK | T | F | DK |
| 7) | You can count a bedroom in your home as regularly used for business if a daycare child uses it 20 minutes a day for a nap | T | F | DK | T | F | DK |
| 8) | You can count as a business trip a trip to the library to look for children's books | T | F | DK | T | F | DK |
| 9) |
You can deduct a portion of your car insurance if you use the standard mileage method to claim care expenses |
T | F | DK | T | F | DK |
| 10) |
A provider should not be on the Food Program if she is spending more money on food than she would receive under the Standard Meal Allowance |
T | F | DK | T | F | DK |
This handout was produced by Think Small (www.thinksmall.org).
For Tom’s entire publications visit: NAFCC Store (NAFCC members receive a discount)
Tom Copeland This email address is being protected from spambots. You need JavaScript enabled to view it. Phone: 801-886-2232 (ex 321)
Facebook - http://www.facebook.com/tomcopelandblog
Blog - http://www.tomcopelandblog.com
"Become a member of the National Associaton for Family Child Care, (http://www.nafcc.org/) and receive monthly business e-newsletters, discounts on books by Tom Copeland, IRS audit help, and much more."
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Giving Identification Numbers to Parents |
by Tom Copeland
Many parents who are now filing their tax return are eligible to claim the Child and Dependent Care Tax Credit. Parents are supposed to give their child care provider a Form W-10, a simple form that asks the provider to give her name, address, and taxpayer identification number. Usually the provider enters her social security number, unless she has obtained a taxpayer identification number. The parent is supposed to keep a copy of the W-10 with their records in case the parent is audited. Few, if any, parents are giving the W-10 form to providers. Instead, the parent is asking the provider directly for her social security number.
In this age of advancing technology and the loss of privacy, many providers are concerned about giving out their social security number to parent clients who are claiming the federal child care tax credit or who are using a dependent care plan at work. As self-employed workers, family child care providers have traditionally given their social security numbers to parents for this purpose.
Contrary to popular belief, family child care providers are not required to give their social security number or an identification number to the parents of the children in their care. But it is a good business practice to do so.
Parents can still claim this credit even if the provider refuses to give out their social security number, by showing that they made a good faith effort to get the number. The best way to show this effort is to mail a Form W-10 to the provider's address. The parent should then attach a note to their child care credit form saying that the provider refused to provide this information. If this happens, the IRS is more likely to audit the provider because they will suspect that the provider did not report all of her income.
The provider is not responsible for finding a copy of Form W-10 and giving it to the parent. Nor is the provider responsible for tracking down a parent who left earlier in the year and giving them their social security number.
Some providers do not want to give out their social security number to parents who left owing them money. Such providers who have good records about how much parents paid them throughout the year and don't mind having the IRS question them about their income may want to refuse to cooperate with a parent until the parent pays them what is owed.
In the end, there is no IRS penalty for providers who refuse to give out their identification number. If the parent gives the Form W-10 to the provider and the provider refuses to fill it out, only then does the provider face a potential $50 penalty for not filling out the form. It is highly unlikely that the parent will send the W-10 to the provider, so providers should not worry about this.
If the provider is on good terms with the parent, I recommend that the provider get a copy of Form W-10, fill it out and give a copy to each parent. (Copies of all tax forms, including the W-10, are included in the (Family Child Care Tax Workbook and Organizer). It's okay to give out your new identification number to some parents even though you may have already given out your social security number to other parents earlier.
Once you have an EIN number, use it with parents and on your Schedule C and Schedule SE. On all other forms, including Form 1040 and Form 1040SE, use your social security number. If you plan to be in business for a number of years, it may be in your interest to protect your privacy by obtaining an EIN. We also recommend that providers give parents an end-of-year receipt.
This handout was produced by Think Small (www.thinksmall.org).
For Tom’s entire publications visit: NAFCC Store (NAFCC members receive a discount)
Tom Copeland This email address is being protected from spambots. You need JavaScript enabled to view it. Phone: 801-886-2232 (ex 321)
Facebook - http://www.facebook.com/tomcopelandblog
Blog - http://www.tomcopelandblog.com
"Become a member of the National Associaton for Family Child Care, (http://www.nafcc.org/) and receive monthly business e-newsletters, discounts on books by Tom Copeland, IRS audit help, and much more."
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Estimated Taxes |
by Tom Copeland
Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment as a family child care provider. Estimated tax is used to pay both income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may be charged a penalty. If you do not pay enough by the due date of each payment period, you may be charged a penalty even if you are due a refund when you file your tax return.
Who Must Pay Estimated Tax
If you had a tax liability for the previous year, you may have to pay estimated tax for the current year.
General Rule
You must pay estimated tax for the current year if both of the following apply.
You expect to owe at least $1,000 in tax for the previous year after subtracting your withholding and credits.
You expect your withholding and credits to be less than the smaller of: 90% of the tax to be shown on your current tax return, or 100% of the tax shown on your last year’s tax return. Your last year’s tax return must cover all 12 months.
Family child care providers generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. However, most providers who are married do not pay quarterly estimated taxes because their spouse has enough withheld from his/her paycheck to cover them both. Your spouse can ask his/her employer to take more tax out of his/her earnings by filing a new Form W-4 with the employer. If you are single then you probably will have to make estimated tax payments. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. For additional information, refer to Publication 505, Tax Withholding and Estimated Tax.
Estimated tax not required
You do not have to pay estimated tax for the current year if you meet all three of the following conditions:
You have no tax liability for the past year as a family.
You were a US citizen or resident for the whole year.
Your last tax year covered a 12-month period.
You had no tax liability for last if your total tax was zero or you did not have to file an income tax return. For additional information on how to figure your estimated tax, refer to Publication 505, Tax Withholding and Estimated Tax.
How To Figure Estimated Tax
To figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year.
When figuring your current year estimated tax, it may be helpful to use your income, deductions, and credits for last year as a starting point. Use your last year federal tax return as a guide. If you were not in business for all of last year, a rough rule of thumb is that your taxes will be about 20% of your gross income. This can vary depending on your personal situation. You can use Form W-4 with the employer. If you are single then you probably will have to make estimated tax payments. Use Form 1040-ES to figure your estimated tax.
When To Pay Estimated Taxes
For estimated tax purposes, the year is divided into four payment periods. Each period has a specific payment due date. The dates are April 15th, June 16th, September 15th, and January 15th. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.
This article was taken from the IRS Web site, http://www.irs.gov, and slightly edited.
This handout was produced by Think Small (www.thinksmall.org).
For Tom’s entire publications visit: NAFCC Store (NAFCC members receive a discount)
Tom Copeland This email address is being protected from spambots. You need JavaScript enabled to view it. Phone: 801-886-2232 (ex 321)
Facebook - http://www.facebook.com/tomcopelandblog
Blog - http://www.tomcopelandblog.com
"Become a member of the National Associaton for Family Child Care, (http://www.nafcc.org/) and receive monthly business e-newsletters, discounts on books by Tom Copeland, IRS audit help, and much more."
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How to Get an |
by Tom Copeland
In this age of advancing technology, many providers are concerned about their privacy when giving out social security numbers to parent clients. Parents need the taxpayer identification number of their caregiver to claim the child care tax credit or to use a dependent care plan at work. As a self-employed person, family child care providers have traditionally given their social security numbers to parents for this purpose.
The IRS allows providers to obtain an Employer Identification Number (EIN) that can be used in place of a social security number. In the past, IRS rules stated that providers could not get an EIN unless employees were to be hired. Now, the IRS is allowing any providers to get their own EINs.
We strongly recommend that all providers get an EIN number for their business. You will give this number instead of your Social Security number to parents at tax time, which they will use to claim the child care tax credit. You will also use this number on your Schedule C and Schedule SE when you fill out your tax forms. (On all other tax forms, including Form 1040 and Form 1040SE, you should use your Social Security number.) Using an EIN can reduce the chances that your Social Security number will get into the wrong hands and cause you problems with identity theft.
In the past, providers sometimes had difficulty getting an EIN number because previous IRS regulations stated that a taxpayer could only get this number if they were required to by law. This is no longer a problem. Just about any provider can now get an EIN. There are three ways to get an EIN.
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1. |
Obtain a copy of IRS Form SS-4 (Application for Employer Identification Number). You can download this form from the Tax Forms section of our Web site or from the IRS Web site, http://www.irs.gov. |
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Question #10 asks for the reason you are applying for an EIN. If you are just starting your business, check the box "Started new business" and enter the words "family child care" in the space provided. If you have been in business for a while, check the box "Other" and enter the words "identity theft" in the space provided. Mail in this form to an IRS addresses listed in the instructions. |
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2. |
Register for the EIN online. The application process is quicker, with fewer questions, and a simpler format to follow. Once you fill out the application online, you will instantly get your EIN. |
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The new online process asks: "Why is the Sole Proprietor requesting an EIN?" You are asked to choose from one of the following choices: "Started a new business," "Hired employee(s)," "Banking purposes," "Changed type of organization," or "Purchased active business." |
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You should always answer, "Started a new business" to this question, unless you are hiring employees. This may seem like a strange answer if you have been in business for a long time, but the instructions say to choose an answer that is closest to your situation. In the past, if you gave this answer, the IRS may have assumed that you were a new employer and started sending your payroll forms to file. This problem will no longer happen because the online application also asks you if you have employees. |
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3. |
If you would like to talk to the IRS directly about getting your EIN, call the IRS at 800-829-4933 and you can get your number over the phone. |
This handout was produced by Think Small (www.thinksmall.org).
For Tom’s entire publications visit: NAFCC Store (NAFCC members receive a discount)
Tom Copeland This email address is being protected from spambots. You need JavaScript enabled to view it. Phone: 801-886-2232 (ex 321)
Facebook - http://www.facebook.com/tomcopelandblog
Blog - http://www.tomcopelandblog.com
"Become a member of the National Associaton for Family Child Care, (http://www.nafcc.org/) and receive monthly business e-newsletters, discounts on books by Tom Copeland, IRS audit help, and much more."
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