When a family child care provider hires a tax professional to do her taxes, she wants her taxes to be done correctly. She expects that her tax preparer understands the many unique rules affecting her business.
Sometimes, however, you may question how your tax preparer has filled out your tax forms.
What should you do if you disagree with what your tax preparer tells you?
First, say to your tax preparer, “Show me something in writing from the IRS that supports your position.”
If the tax preparer can show you that you are wrong, then accept it. But, if he or she can’t back up their position with a written authority, you should not let it go.
Ask the tax preparer to contact the IRS directly to seek a written authority. You could also contact the IRS yourself: 1-800-829-4933.
You can also contact me for help. Or you can ask your tax preparer to contact me (email@example.com). I’m happy to point out what the IRS may have said about your question. I’ve posted everything the IRS has written about family child care in the “IRS Audits/Documents” section on my blog.
Here’s an example:
Let’s say you want to deduct the business portion of car loan interest when you are using the standard mileage rate. Your tax preparer says you can’t deduct car loan interest unless you use the actual expenses method of claiming car expenses.
You say, “Show me something in writing that supports your position.” Your tax preparer won’t be able to. Then you say, “I’m not going to accept what you say without a written authority. Please research this issue and contact the IRS if necessary.”
In fact, IRS Publication 463 Travel, Entertainment, Gift, and Car Expenses” page 16 says, “However, if you are self-employed and use your car in your business, you can deduct that part of the interest expenses that represents your business use of the car.”
Sometimes the answer won’t be so clear cut.
Your tax preparer may say you can’t deduct your front door welcome mat because it’s not an “ordinary and necessary” business expense. This language can be found in IRS Code Section 162(a). Ordinary and necessary means typical, helpful, appropriate or useful for your business. Something doesn’t have to be indispensable for it to be ordinary and necessary.
There’s nothing in writing about welcome mats. You argue that parents and children use your welcome mat to wipe their feet and therefore it’s ordinary and necessary. Your tax preparer disagrees and says that it’s a personal expense. If you are at an impass, you must make a decision whether to back down or insist that the welcome mat be deducted.
Sometimes you may disagree with your tax preparer because he or she is being too aggressive in claiming business expenses.
I heard this week from a child care provider whose tax preparer told her she could automatically claim that she worked 2 hours per day doing business activities when day care children were not present in her home. There is nothing in writing to support this position.
In fact, it’s dangerous to claim any business hours unless you can back them up with some records to show the actual hours you worked. (The best way to show such business hours is to track them carefully for at least two months each year and use the average for these months for the rest of the year.)
If your disagreement with your tax preparer is over a few minor matters, it may not be worth pursuing. But if the disagreement is over a major issue, such as your Time-Space Percentage, then you may want to insist on seeing something in writing before you agree with your tax preparer’s position.
If you can’t agree on major issues, it may be time to consider changing tax preparers.
No one, including tax preparers, will always have the right answer. We all make mistakes. I make mistakes. However, you should not accept what a tax preparer tells you unless you are comfortable that he or she is giving you the correct information. Asking for something in writing from the IRS to back up a claim is a reasonable request.
Image credit: https://www.flickr.com/photos/41639606@N06/
For more information about working with tax preparers, see my Family Child Care Tax Workbook and Organizer.