Recommendations From a Child Care Provider if You Are Audited by the IRS

6a0133f3fc5805970b01a5119eb021970c-320wiWhen I helped Cathy Ross win a 98% Time-Space Percentage at her IRS audit in U.S. Tax Court, I asked her if she had any recommendations for other family child care providers facing an IRS audit.

Here’s what she wrote to me:

“I have learned so much through this process.  My recommendations for other providers would be:

DON’T TAKE IT PERSONALLY – AND DON’T BE AFRAID!

Become a member of the National Association for Family Child Care – if you ever have a tax issue, you have the guidance of the best tax attorney available – Tom Copeland.

[Note from Tom: I offer free IRS audit assistance if you are a user of Minute Menu Kids Pro and have joined The Child Care Business Partnership.]

Use the Minute Menu Kids Pro program to record your expenses, time in/out for children, time you work on child care business when children are not in care, record all meals you serve (including those over the amount you can be reimbursed for – they will show up as errors on your monthly report, but you will get credit for them on your end of year statement.)

Keep your receipts in a safe place.  I could not locate all of my receipts – and I knew this because I found a bag of receipts labeled “Bag 1 of 2” and I had no receipts for 6 months of one year, and four months of another.

Keep all of your credit card statements, bank statements, utility bills, cell phone bills, etc.  I thought it would be easy to just print off any of these if I needed them, since I pay most of my bills online, but that was not the case.  Keep them with your monthly receipts and highlight any child care purchases.

Keep a copy of your training certificate or training catalog with your travel receipts to verify that you actually attended a child care function when claiming training costs, hotels, travel, meals, etc.
When making charitable donations, take pictures of what you are donating and list all the articles.  Attach this to the receipt issued by the charitable organization.  To determine value, you can use the mobile App provided by Turbo Tax (It’s free).  This is essential when claiming non-monetary donations.

Use and keep sign-in sheets even if not required by your local state agency.

Don’t assume you will never be audited – prepare yourself so that you will breeze through the process!!”

Tom’s comment: Cathy spent two years fighting the IRS. Eventually, she won a 98% Time-Space Percentage, the highest I’ve ever seen. I’d advise all family child care providers to take her recommendations seriously. It will save you a lot of time and stress in an audit.

For further information about the Cathy Ross audit:

IRS Tax Court Accepts 98% Time-Space Percentage!

Tom Copeland letter to the IRS Tax Court attorney arguing for the 98% Time-Space Percentage.

Cathy Ross Thank You Letter to Tom Copeland.

Here’s a listing of other Tax Court cases that involved family child care providers.

Tom Copeland – www.tomcopelandblog.com

Image credit: www.womenshealthmag.com



Categories: IRS and IRS Audits, Record Keeping & Taxes, Time-Space Percentage

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