In an IRS audit of a family child care provider, the first thing the auditor will do is to find out if you accurately reported all of your business income.
You must report as income any money received from parents (including co-payments, registration fees, late fees, etc.), subsidy program payments, Food Program reimbursements (except for those received for your own children), and grants.
Here are some tips on how to keep records of your income to protect yourself in case of an audit.
* Keep records showing the source of all deposits to your checking and savings accounts, both business and personal. Indicate on deposit slips, check registers, Minute Menu Kids Pro (now called KidKare) software program, or other record-keeping system where the money for each deposit came from. For example: husband’s paycheck, deposit from Mrs. Oak and Mrs. Carlson, transfer from savings, etc.
* When you deposit money into a checking account, it’s best not to get cash back as part of the same transaction. Instead, write a separate check, or use an ATM, to get cash. You want your deposit amount to match your payment records. This will make it easier to track where your money went.
* Make a note on a ledger or calendar if you receive cash from parents but do not deposit all of it into a bank account. Make sure to indicate how much of these cash payments you did deposit.
* Keep attendance records that show when a child is not present (due to sickness, a vacation, or a holiday, for example). The IRS will assume that a child is enrolled in your program for 52 weeks a year at your full-time rate and will look to your contract to see what your rate is. Your records need to show when the child is not there.
* Keep records that show when you do not receive your full-time rate for a child for part or all of the year (because of a family layoff or other special circumstances). Sometimes providers forgive a parent debt. If this is the case, make a note of this, so the IRS won’t assume you were paid at the full-time rate.
* Keep records to show when you choose not to charge a fee (for a late pickup, overnight care, early drop-off, or a field trip fee). If you contract says you charge $1 a minute for a late pickup, the IRS will assume you charged for every minute every parent was late. If you aren’t charging a fee that is in your contract, put a note in your attendance records (for example, “No late fee charged”).
Follow these steps and you will be well organized come tax time, and if you are every audited.
Tom Copeland – www.tomcopelandblog.com
Image credit: https://www.flickr.com/photos/76657755@N04/
For more information, see my Family Child Care Record Keeping Guide.