How well does H&R Block do in preparing a family child care provider’s taxes online?
The short answer is not well, unless you understand how to properly use the software. You also need to be aware of how to avoid the several errors it makes.
As a general rule, do not use this software or any other tax preparation software unless you know exactly what you are entitled to deduct as a business expense, how much of these expenses you can deduct, and where they should appear on your tax forms.
This is the same advice I gave when I reviewed TurboTax recently.
Here are my comments about the H&R Block Premium online software:
When H&R Block asks you to enter business expenses such as supplies, repairs, etc. it assumes that the amount you enter is used 100% for your business. It doesn’t explain how to enter these expenses that are also used personally. You must use your time-space% with such shared expenses.
This is the same problem when using TurboTax.
When you are entering house related expenses the software does a good job of allowing you to enter expenses as either 100% business or shared.
H&R Block asks you to choose between using the standard meal allowance rate and entering your actual food expenses. If you use the standard meal allowance rate it does a good job of allowing you to enter the number of meals and snacks you served. But, it uses the 2014 rates, not the 2015 rates! The 2015 rates are $1.31 breakfast, $2.47 lunch/supper and $.73 snack for all states except Alaska and Hawaii (which are higher – see here for these rates). H&R Block does not give the Alaska or Hawaii rates and it does not say anything about being sure to include all meals and snacks served, including those you are not reimbursed by the Food Program.
The software gives providers the choice of using the Simplified Method to claim house expenses or using Form 8829 to claim your actual house expenses. The vast majority of providers should not use the Simplified Method because they won’t get as high a deduction as they can using the actual expenses method (See my article explaining this). However, if you choose the Simplified Method the software does not account for a special rule that affects only family child care providers!
All other home-based businesses can deduct up to $1,500 of their house expenses using this method. But, providers must reduce their deduction by applying their Time percent to the calculation. Although this is clearly explained in the instructions to Schedule C, the software does not. Therefore, providers will claim more in house expenses than they are entitled to if they choose this method.
When entering in the space and time to calculate your Time-Space Percentage, H&R Block simply asks you to enter “Total Hours Used for Daycare.” There is no explanation on what hours to count. In particular it doesn’t point out that you can count hours spent on business activities when children are not present. This is an important point because under counting these hours can cause you to pay much more in taxes than you should.
In general depreciation is the most difficult tax issue to understand. Both TurboTax and H&R Block do not do a good job in explaining how to enter items that should be depreciated. When H&R Block asks providers to enter home improvements it does not make a distinction between home improvements (deck, remodeling, etc.- 39 years) and land improvements (fence, driveway, patio – 15 years). Since the rules are different for these categories of expenses, this makes a difference. The software also does not seem to take into account the $2,500 rule that allows providers to deduct items in one year.
I found the H&R Block software easier to use than TurboTax. It has made many improvements for providers since I last looked at it several years ago. I wasn’t able to review H&R Block before my 2015 Family Child Care Tax Workbook and Organizer was published this month, so some of the criticisms in my book are no longer applicable.
Tom Copeland – www.tomcopelandblog.com
Image credit: H&R Block