Taxes and the IRS

With the arrival of tax season, providers must decide whether to do their tax return themselves, or to get help from a professional tax preparer. All providers should understand that there are many unique record keeping and tax rules for your business. This webpage is designed to be a resources as you prepare your own taxes.

*Links to tax forms are the most updated found on the IRS website as of 12/7/15

If you choose not to prepare your own taxes, please read our following tips: 

Tax Preparer Search

Information in this directory comes from the individual tax preparers and is neither verified nor updated by us. While the names on the list come without any recommendations, the list is a good place to start.

Note: We are constantly looking for additional tax preparers to add to this directory. If you know of a tax preparer who should be added to this list, email his or her name and address to RNI. If you are a tax preparer who wants to be listed, please email nafcc@nafcc.org. All tax preparers on our list will receive a free monthly email newsletter that contains regular updates about new tax laws.

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How should I choose a tax preparer?

If you looking to find a tax preparer to do your business tax forms, check out our tax preparer directory below. There you will find the names of tax preparers in your state who specialize in family child care.

If you can't find someone from this list, take the time to shop around and compare. Not all tax preparers are the same. Do not assume that every tax preparer understands the family child care business. Many do not because there are a number of tax rules that are unique to your business. Some tax preparers will merely ask you for your income and expense totals and enter these amounts on the various tax forms. You should instead look for someone who is more assertive in asking you questions about all the potential expenses you are entitled to deduct.

If you cannot find someone from our tax preparer directory, here are some tips on finding a tax preparer:

  • There are three national tax preparer organizations that offer state listings of their members: the National Association of Enrolled Agents (855-880-6232), the National Association of Tax Professionals (800-558-3402), and the National Society of Accountants (1-800-966-6679). You can also look in the phone book to find the local chapter of any of these organizations.
  • Ask other family child care providers or the members of your family child care association for the names of their tax professional.
  • Ask your local child care resource and referral agency, Food Program sponsor, or family child care association for names.
  • Find out if there are any local taxpayer assistance services for low-income people in your area. Contact your local United Way for more information about these programs.
  • The IRS Volunteer Income Tax Assistance (VITA) program offers free tax help to low-to moderate-income (under $35,000) taxpayers. Volunteers receive training to help prepare basis tax returns in communities across the country. Not all VITA operations prepare business returns. Be sure to ask right away if the site is equipped to prepare family child care returns. To find a VITA site close to you, call the IRS at 800-829-1040.

What Questions should I ask a tax professional?

  • What kind of training does the tax professional have? Look for someone who is an enrolled agent (EA), a credential that is issued by the IRS after the tax preparer passes a test in tax preparation and therefore is more likely to understand the family child care business. A certified public accountant (CPA) is probably less likely to be familiar with family child care taxes than an EA.  A tax attorney or tax professional who specializes in family child care taxes can be a good choice if the person is very familiar with this field and keeps up with the annual changes in tax laws. An EA, CPA, or lawyer can represent you before the IRS if you are audited. Tax professionals without these credentials usually cannot.
  • What sort of ongoing tax training for small home-based business tax returns is the tax professional taking? Many commercial tax preparation agencies give their employees a limited amount of training, most of which involves individual income tax returns, not the self employed. They may know little about the business of family child care and still less about the deductions to which you are entitled. They will tend to be more conservative in preparing your return. A tax preparer who is not an Enrolled Agent or CPA can still be a good choice if the person is very familiar with family child care and keeps up with annual changes in tax laws. How many family child care tax returns did the tax professional complete over the last three years? Bear in mind that although experience is important, a less-experienced preparer may have more motivation to learn about your business and keep up with changes in the law.
  • How many family child care tax returns signed by the tax preparer have been audited over the years? Was the preparer at fault in any of the audits? Although being audited is not necessarily a reflection on the tax professional (many audits are chosen at random), you want to know if the preparer is completing returns correctly.
  • What does the tax preparer charge? Is the fee based on a flat amount per return, a charge per form, or an hourly rate? Some tax professional may quote you a range for the fee before looking at your particular circumstances. If your tax return is complicated, a flat amount per return is usually preferable. Make sure you ask about all fees up front.
  • Is the tax professional available all year or only during tax season? Do they do tax planning for the upcoming year? A tax professional who is in business year round will probably be able to offer you better service.
  • Ask for references from other family child care providers who use the tax professional. Ask them if the tax professional returned their calls promptly, was easy to work with, and answered all their questions.
  • Do you feel comfortable with the person? Is the person easy to contact and to talk to? You will probably maintain a better relationship with your tax professional if you share similar philosophies about taxes. If you are very conservative in claiming deductions, look for a professional who understands you and will follow your wishes. Likewise, if you are more assertive in claiming deductions, find someone who shares your views.

Find out if the professional is familiar with:

  • Computation of the business use of home (Form 8829) and the Time-Space Percentage. Watch out if someone doesn't ask you for all the hours you worked (including hours after the children are gone).
  • The IRS standard meal allowance rate and the reporting of Food Program income. Watch out if someone doesn't know the current meal rate or forgets to count meals not reimbursed by the Food Program.
  • Depreciation of home, furniture, appliances, and equipment that are used for both business and personal purposes. Watch out if someone says that it's not worth it to claim depreciation, particularly home depreciation.
  • Hiring employees. Watch out if someone doesn't advise you to withhold and pay Social Security taxes (as well as state employment taxes) on those who help you care for children, no matter how little you pay them. Exceptions to this rule are rare.

Watch out for the warning signs of an unscrupulous tax preparer:

  • Someone who says they can obtain larger refunds that other preparers;
  • Someone who bases their fee on a percentage of the amount of the refund; or
  • Someone who refuses to sign the tax return or provide you with a copy for your records.

Remember, even if you hire a tax professional to do your taxes, you are still responsible for any mistakes on your tax forms, even if the mistake was made by your tax professional. You are also responsible for keeping good records to support the claims on your tax forms. Always review your tax return before signing, and ask questions if you don't understand something. Never sign a blank tax form or one filled out in pencil. Keep a copy of the return for your records. 

Should I use Tax Preparation Software?

An increasing number of providers use commercial tax preparation software (Turbo Tax, Tax Cut, etc.). These programs can be helpful in calculating depreciation, doing the math, and filling in the many tax forms. They may help you catch mistakes. But they also have drawbacks. Specifically, tax software will not:

 

 

Identify what is deductible for your business. It will merely give you the title of the lines on the forms (“supplies” for example) and it will be up to you to know what to claim.

 

 

Explain how to deduct items that are used for both business and personal purposes. You need to understand how to claim some supplies that are 100% business and other supplies that are shared. In general you will apply your Time-Space percentage to shared items. This is a key concept that affects many lines on your tax return.

 

 

Ask you detailed questions about the hours you worked, so that you will report the highest Time-Space percentage that you are allowed.

 

 

Catch all the special rules affecting your business. For instance, they will not tell you that reimbursements you receive from the Food Program for your own child are not taxable income, or that you should count all meals served to day care children (including extra meals not reimbursed by the Food Program).

Because of these and other weaknesses (software programs can contain errors), I do not recommend using tax preparation software unless you are very familiar with all the unique rules affecting family child care providers.

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