Questions and Answers from Tom Copeland’s Tax Webinar – Part I

6a0133f3fc5805970b017d412a12d4970c-300wi“How long should I keep my receipts?”

“How do you depreciate items when your Time-Space % changes from year to year?”

“Do I need to keep odometer readings when claiming car expenses?”

These were some of the many questions asked last night at my webinar “Tax Changes for 2012: How to Avoid Mistakes on Your Tax Return.”

100 people attended the webinar (a record!) and so many questions were asked that I didn’t have time to answer them all.

The webinar was sponsored by and hosted by the National Association for Family Child Care (NAFCC).

I conduct monthly webinars for NAFCC.

Here’s Part I of a selected list of some of the questions from last night. Part II, Part IIIPart IV and Part V.

Car Expenses
“Do I need to keep odometer readings when claiming car expenses?”

“If I didn’t claim mileage in 2014 can I claim these miles in 2015?”
No. The only way to claim these expenses is to amend your 2014 tax return using IRS Form 1040X.

“Can I deduct 100% of the miles I drove to supermarkets if I bought things for the daycare and my family?”
Maybe. You can only deduct trips where the “primary” purpose of the trip was for your business. Primary purpose means more than 50% of the reason you drove was for your business. If you spend more money on business food than personal food, you could count this trip. However, never deduct 100% of trips to grocery stores because the IRS will say you must have some personal trips. Count maybe 60%, 70%+ of your trips to grocery stores, but never 100%.

“If I use the standard mileage rate can I also deduct vehicle insurance that was purchased because of my business?”
No. You can only deduct vehicle insurance if you use the actual expenses method for claiming car expenses.

“I have a leased vehicle, can I use the standard mileage rate?”

“Can I go back and forth between using the standard mileage method and the actual vehicle expenses method?”
If in the first year you use your car for your business you choose the standard mileage method, you can switch over to the actual expenses method in later years. If in the first year you use your car for your business you choose the actual expenses method, you cannot switch over to the standard mileage method in later years.

“Can I deduct the car loan payment?”
No. If you use the actual expenses method you can depreciate your vehicle. This will allow you to deduct over time the cost of the vehicle. You can always deduct the business portion of any car loan interest you pay, whether you use the standard mileage method or the actual expenses method.

Hiring Employees
“I’ve heard the term “casual labor” in referring to hiring my children. What does this mean?”
Casual labor is another term for an independent contractor. You do not have an independent contractor when hiring your own children. You must treat your children as employees. See more.

“Is there a minimum age for paying your child?”
Federal law prohibits you from hiring anyone under age 14 who is not a family member. There is no federal child labor law regarding hiring your own children. So, you could pay you eight or nine year old to help you clean up after the children, set the table, etc. However, your state labor law may prohibit you from hiring your own children under age 14. Check with your state department of labor.

“Do I have to pay Social Security tax on the retired person that mows our lawn during the summer?”
No. An individual you pay to mow your lawn, clean your home or do gardening is an independent contractor, not your employee. Therefore, you don’t have to withhold or pay Social Security taxes. If you pay individuals $600 or more in a year you must give a copy of IRS Form 1099 to the worker and send a copy to the IRS. If you hire a company to do this work, you do not have to issue Form 1099. See more.

“If I paid my 16 year old daughter to help me care for children how much can she earn before she has to pay taxes?”
Children of your own under age 18 who earned less than $5,950 in 2014 do not have to pay Social Security or federal income taxes. And they don’t income taxes.

“Can I pay my daughter’s school loan payments as compensation for her helping me?”
Yes. There are two ways to handle this. First –  treat your daughter as your employee. This means preparing a job description, having her do work that is directly related to your business (no chores), and keeping records of when she worked and how much you gave her. File IRS W-2 at the end of the year. You can deduct the cost of such loan payments as a business expense. Second – treat this as a personal transaction, not a business one. You daughter would help you as a volunteer and you would give her gifts (pay the student loan). This would not be a business expense to you and you would not have to keep any records or file any tax forms.

“Where on my tax forms do I put the amounts I paid my own children?”
Schedule C, line 26 Wages.

“Can I only pay my own children for work they do after the daycare children are gone?”
No. You can pay your own children to do work while children are present (cleaning, setting the table, teaching other children, helping you with activities, etc.).

“My husband will soon be retiring. Should I hire him so we can deduct health insurance premiums?”
You can hire him and deduct family medical costs, including health insurance premiums by setting up an IRS Section 105 medical reimbursement plan. You don’t have to pay your husband a salary and thus avoid paying any payroll taxes.

Check out the remaining Q&A:

Part II

Part III

Part IV

Part V

Tom Copeland –

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Record Keeping smallFor additional information see my Family Child Care Record Keeping Guide.

Categories: Car Expenses, Employees, Record Keeping & Taxes

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