Family child care providers sometimes offer discounts or scholarships to parents to help them afford their child care services.
* A provider gives a parent a $100 discount on her services because the parent lost her job.
* A provider gives a parent a $300 scholarship by forgiving the amount the low-income parent was supposed to pay her as a co-pay.
* A provider gives a parent a reduced fee of $50 for the first week of care as an incentive for the parent to enroll in her program.
* A parent leaves a provider owing her $700. The provider decides not to try to collect from the parent.
In all of these situations the provider cannot deduct the amounts involved as a business expense.
Instead, the provider will report less income on her taxes, and pay less in taxes as a result. Only report as income money that you receive. Do not deduct money that was owed to you and not paid, or amounts that you offered to reduce your rates as a discount or scholarship.
Note: In general, to deduct a “bad debt,” you must have previously included the amount in your income. So, if you entered into your records that a parent paid you $200, when, in fact, she only paid you $100, you could then report the unpaid $100 as a “bad debt.” But, since this washes out, the better way to go is to only report as income money you actually receive. See more about this on the IRS website.
Have you offered discounts or scholarships to parents, and if so, why?
Tom Copeland – www.tomcopelandblog.com
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