Here are more questions and answers from my webinars “What the New Tax Law Means for Family Child Care” where I discussed the significant tax changes coming in 2018. I’d previously written an article highlighting these changes.
Many other questions about record keeping and taxes were asked during these webinars. I’m posting the questions and my answers in this article and several upcoming articles so that everyone can learn from them.
Q: What is the most a provider’s own fifteen year old can make working for me before being subjected to state or federal income taxes for 2017?
A: $6,300 for federal income tax purposes. Each state may have a different rule for state income taxes.
Q: If I pay a family member (son, daughter) to assist me with my daycare, can I deduct that expense as wages?
A: Yes, as long as you follow all the rules. The child must do work directly related to the business (not general chores). You should have a job description and a record of payment. You should file annual Form 944, W-2 and W-3. If you child is age 18 or over, you’ll have to withhold Social Security/Medicare taxes. Also, check with your state labor department to see if you must purchase workers compensation insurance.
Q: If I hire my own children to help around the house, what is an acceptable rate to pay them?
A: Federal minimum wage of $7.25 would be reasonable in most situations, or a higher state minimum wage.
Q: When I pay my staff with a personal check, how do I deduct the tax. What form do I use. Where do I send it? When is it due?
A: Before issuing the check you must withhold 7.65% Social Security/Medicare taxes and state and federal income taxes. To file these quarterly payroll taxes with the IRS, use Form 941 or Form 944 (if total wages for the year are less than $4,000).
Q: If you have a payroll service doing my payroll taxes do I need to worry about the new withholding rules?
A: Because of the new tax law signed in December, employees will have less withheld from their wages each pay period. Your payroll service will know about the new, lower withholding tax rules.
Q: Do I need to have my employees fill out a new Form W-4 to change my withholding taxes?
Q: How long should we save receipts?
A: Three years after you file your taxes. In some states you must save your records for four years. Save any payroll records associated with employees for four years.
Q: For years I have collected all my receipts. Is this necessary or does a bank statement that shows these charges enough?
A: Save those receipts! Your bank statements aren’t enough. Your bank statements don’t say what you bought, only where you bought it.
Q: Do I need to use my EIN or my Social Security number to pay IRS and state quarterly estimated taxes? Does it matter if I’m a single person LLC?
A: Use your EIN for paying quarterly estimated taxes. It doesn’t matter if you are a single person LLC.
Q: Do I have to pay Social Security/Medicare taxes if my profit is less than $400 for the year?
A: No, that’s the cut off.
Q: Does the accounting section of KidKare connect to your bank account or do you have to enter each item by hand?
A: No it doesn’t. You’ll have to do this by hand.
Q: I heard that if you own/operate your own family day care you shouldn’t have to pay taxes. Is this true? And since I’m paying taxes, is my tax preparer doing something incorrectly?
A: Providers are not exempt from paying taxes!
Q: I’ve been widowed for two and a half years and I have never paid quarterly estimated taxes. Should I be worried?
A: The IRS rule says you must be paying in at least 90% of the taxes you owe each quarter. If you don’t, there is a penalty. If you have been paying in taxes when you file your tax return, it’s likely should should be filing quarterly estimated taxes.
Q: You can write yourself a check paying yourself a salary from your business account. Correct?
A: You can write yourself a check for your personal use, but technically it’s not a salary. You can’t deduct what you pay yourself. Any money that is not spent on business items it automatically yours, whether you write a check to yourself or not.
Q: What is the average cost for business liability insurance?
A: This can vary a lot by state, by the amount of coverage and by the number of children in your care. I would guess that the cost might range from $300 – $900 a year.
Q: Have there been any major changes on the Schedule C?
A: Fortunately not!
Q: Am I eligible for the Child Tax Credit if my child is over age 17 and has a disability?
A: Unfortunately not.
Q: Do you have any books on how to retire successfully as a child care provider?
A: Well, there’s my book – Family Child Care Money Management & Retirement Guide.
Q: Do you have any suggestions to find a good tax preparer in my area?
Q: Do you recommend any online software such as TurboTax?
A: No. I’ve written about TurboTax here. I’ll be reviewing H&R Block and TaxAct later.
Q: How can I have you review my tax return?
A: There are two ways. First, become a member of The Child Care Business Partnership. Second, purchase myMAX, the new software that allows you to use voice commands to track meals, attendance, hours, and more.
Q: What is the rate for the Child Care Tax Credit?
A: Parents can claim this credit up to $3,000 for one child or $6,000 for two or more children. See more here.
Q: Can I still use the higher standard deduction of $24,000 as a married couple and still deduct my food and supply expenses?
Tom Copeland – www.tomcopelandblog.com