Tax preparers can make mistakes.
Many mistakes are the result of not understanding the unique tax rules affecting family child care providers.
This is the time of year I hear from providers who have met with their tax preparer and have questions about whether their tax return has been done correctly.
Here are some of these mistakes:
Not entering hours on Form 8829 Expenses for Business Use of Your Home
One tax preparer counted all of a provider’s space as “exclusive” use space on line 1 of this form. As a result, he entered no hours on line 4. This would have been the correct way to fill out this form if it was any business other than family child care. All family child care providers must enter the hours they work in their home on line 4.
Not subtracting the value of land when depreciating the home
All family child care providers should depreciate their home on Form 8829. Line 36 is where to put the purchase price and line 37 is where to put the value of the land at the time of the purchase. Make sure there is a number on line 37.
Claiming 100% of household items such as supplies, as well as toys, repairs, etc.
Although providers can deduct a portion of hundreds of household items, they can’t deduct 100% of such items unless they are used 100% for your business. For shared business and personal expenses, use your Time-Space Percentage. When you are giving your tax preparer amounts that you spent on various items, be sure to indicate whether the amounts are 100% business or shared.
Not deducting items you are entitled to deduct
Yesterday a provider told me she was considering buying a generator for her home because the power goes off several times a year. Her tax preparer said she wouldn’t be able to deduct it. A generator is clearly an “ordinary and necessary” expense for a family child care provider. You can’t run your business without electricity and you don’t want food to spoil!
Recommending that providers not join the Food Program because they will end up paying more in taxes
This is terrible advice that I keep hearing about. Yes, your taxes will be higher if you join the Food Program, but you will have more money in your pocket after you pay these taxes. If parents paid you more money your taxes would also go up, but I doubt that you would refuse the money.
Depreciating items costing less than $2,500
A new IRS rule allows you to deduct in one year any item costing less than $2,500, rather than depreciating it. See my article on this.
Don’t give up simply because your tax preparer says something you don’t agree with. Ask him/her to show you an IRS document that supports their position. See my article: Do You Know What is On Your Tax Return?”
I am learning about these tax preparer mistakes while helping members of The Child Care Business Partnership. One of the member benefits is that I can review a provider’s Minute Menu records and tax return where I regularly find these errors. Once identified, the provider can get them corrected and save money. To learn more about the benefits of membership, click here.
Tom Copeland – www.tomcopelandblog.com