How Will GOP Changes in Tax Laws Affect Family Child Care Providers?

Congress is now debating making major changes in federal tax laws. A tax bill has passed the House and the Senate is now considering their own bill.

We don’t know what the Senate bill will be and assuming the two bills go before a conference committee, we don’t know what the final law will say.

Because we don’t know exactly what the new law will be I’ve hesitated to write about this.

I have, however, received several emails from family child care providers worried that the new law may limit their ability to deduct expenses for their business.

I have seen nothing that would change your ability to deduct your business expenses.

There are three issues that might affect some provider’s personal taxes:

Standard Deduction

The House bill would raise the standard deduction from $12,700 to $24,000 for those who are married and filing jointly, and rise from $6,350 to $12,000 for single filers. At the same time it would take away personal exemptions ($4,050 per person). Taken together, this would mean a slight lowering of taxable income for single filers and an increase in taxable income for a family with two or more children.

It’s likely that many providers who previously itemized their taxes would benefit by the higher standard deduction. Providers would not lose the ability to claim their Time-Space Percentage of their property tax and mortgage interest on IRS Form 8829 Expenses for Business Use of Your Home.

Update: This standard deduction affects your personal taxable income. It has nothing to do with your business deductions. Some readers have interpreted this to mean you don’t have to save business receipts and can claim a standard deduction for your business expenses. Not true! You still must save all business receipts. There is no standard deduction for business expenses.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) helps lower income families and many providers qualify for this credit. The House bill would require the IRS to verify the income and expenses of those who apply for the EITC. Details about what this might entail are not clear, but if passed it could create a delay in receiving this credit and may intimidate some providers in not trying to claim the credit at all.

Child Tax Credit

The House and Senate bills would raise the Child Tax Credit from $1,000 to $1,600 or $2,000. This credit is for families who have dependent children under age 17.

Stay Tuned

When Congress passes a final law I will write more about what it may mean for family child care providers.

Tom Copeland –

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Categories: Record Keeping & Taxes, Tax Return

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