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: I have my daycare space in my downstairs family room. I use it almost exclusively for daycare. If I have a family party, the room might be used by my guest. Last year, I had two family parties in this room. Otherwise, it was used exclusively for my business. Can I use the exclusive use room rule?
A: No! Unfortunately not. To take advantage of the exclusive use rule you can never use it for personal use, even for one day. See my article on the exclusive use rule.
Q: I do webinars and homework on a desk in my bedroom. Should I only count the space taken up by the desk or count the entire room as regularly used?
A: Count the entire bedroom as regular use, assuming you use it at least two-three times a week for business activities.
Q: Would a playground specifically added for my business be counted in the square footage of my home?
A: No. Outside space is not included in the calculation of your Time-Space Percentage. So, don’t count a playground area, patio, lawn or driveway space.
Q: Can I write checks for utilities from my business checking account if I am an LLC?
A: No. One of the reasons why providers seek to incorporate (such as a Limited Liability Company or LLC) is to reduce their personal liability if a parent sues them. However, to get this protection by incorporating, you must keep your business and personal records and finances completely separate. Since your home utilities are used by both your business and your family, if you wrote a check from your business checking account, you would be commingling funds and you would lose your liability protection. You must write this check out of your personal account and reimburse yourself from your business account. This is extra paperwork because you have to reimburse your time-space% of the utility costs, which you won’t know until the end of the year. What a pain!
Q: Should I dissolve my LLC? I’m in my second year of doing child care.
A: I don’t recommend incorporating for many reasons. See my article on this. I hear more from providers who ask me how do I get out of being incorporated than from providers who tell me how much they like being incorporated. If you want to dissolve your LLC, go to your secretary of state’s office and get the paperwork to necessary to dissolve it.
Q: Is a single person LLC the same as being incorporated?
A: Yes. The advantage of the single person LLC is that your taxes are the same and you file the same tax forms. There are other types of LLCs: partnership LLC, and corporate LLC.
Q: I operate three family child care homes outside of my home as a single person LLC. Do you recommend I not be an LLC?
A: There is more reason to be an LLC when you operate your business outside of your home. That’s because your business and personal records/receipts are easier to keep separate, you have employees, and you probably have a larger income. But, see the downsides in my answer below.
Q: I’ve been an S Corporation for five years and didn’t realize all the complications associated with it. Can or should I consider changing my business structure because I am behind on my taxes?
A: Being behind on your taxes will not be fixed if you dissolve your corporation and set yourself up under a different business structure. It’s possible that paying more in fees and losing your house depreciation deduction is contributing to your problem. In general, taxwise it doesn’t make sense to incorporate unless your business profit is above $30,000.
Q: Is it a benefit to be an LLC?
A: The benefit of being a single person LLC is that you can get some additional personal liability protection. But, the best way to protect your business and yourself is to get a lot of business liability insurance ($1 million per occurrence and $2 million aggregate). The downsides of being an LLC: costs to set it up, annual fees as a corporation, more paperwork, higher tax preparation fees, loss of the ability to depreciate your home (but not if you are a single person LLC. See my article on LLCs.
Tom Copeland – www.tomcopelandblog.com
Image credit: http://maxpixel.freegreatpicture.com/Town-Sign-Answers-Support-Place-Name-Sign-Questions-1699981
For more information about the Time-Space percentage see my book Family Child Care Record Keeping Guide. For more information about incorporating see my book Family Child Care Legal & Insurance Guide.