Will Your Food Deductions Be Lower After Joining the Food Program?

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The Child ad Adult Care Food Program (CACFP) is one of the best programs in the country that serve family child care providers.

All eligible providers should join and stay on the program because it is a valuable nutritional resource that can help beat obesity.

The CACFP is also valuable because of the financial benefits is offers providers.

Yet, some providers and tax preparers don’t understand the positive financial impact of the CACFP. It has lead some providers to choose not to join or to drop out of the program. This is a major mistake.

This week by a provider wrote to me saying she was concerned that being on the Food Program would lower her food deductions. Unfortunately, this is a common misunderstandings about the Food Program.

Here’s why this fear is unfounded.

Let’s use an example of Niki Provider who receives $5,000 from the Food Program and has no young children of her own at home. She uses the standard meal allowance rule to claim her food expenses that total $12,000. Her food expenses are so much higher than her Food Program reimbursements because she is receiving the lower Tier II rate. Niki’s parent income is $30,000.

There are two ways Niki can report her food income and expenses.

*   First, she could report the full $5,000 as taxable income and the full $12,000 as a business expense.

*   Second, she could report only the net expense of $7,000 ($12,000 – $5,000 = $7,000). This means she would report no income and only $7,000 of food expenses.

In both cases, you can see that Niki’s taxes will be the same. In the first situation her income is $35,000 ($30,000 + $5,000) and her food expenses are $12,000 – leaving a profit of $23,000 (before other expenses). In the second situation her income is $30,000 and her food expenses are $7,000 – leaving the same profit of $23,000.

The IRS clearly prefers that providers follow the first method and report all their Food Program income and all allowable food expenses. They say so in their Child Care Provider Audit Technique Guide.

Therefore, you should not be fearful that somehow being on the Food Program means you will have lower food expenses.

The financial effect of being on the Food Program is that your profit will be higher (which is good!). Yes, you will pay taxes on Food Program reimbursements* ($5,000 in our example), but you will pay these taxes out of the $5,000 and still have most of it left over after paying your taxes.

In other words, you will always have more money in your pocket, even after paying taxes, when you participate on the Food Program.

For more information, see my two other articles:

Are CACFP Reimbursements Taxable Income?

The Three Most Common Objections to the Food Program

* If you receive Food Program reimbursements for your own children, these amounts are not taxable income.

Tom Copeland – www.tomcopelandblog.com

Image credit: www.udmo.com

Record Keeping smallFor more about claiming food expenses, see my book Family Child Care Record Keeping Guide.



Categories: Food Program and Food Expenses, Record Keeping & Taxes

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3 replies

  1. The other thing to remember is that the food program reimburses based on processed food prices. If you raise at least some of your own vegetables and make as much as you can from scratch you actually can do very well financially. And the kids eat better, too.

  2. Hello,
    I completely agree with the financial and nutritional benefits of being with a food program. I’m wondering if other providers have experienced the same frustration as me with the paperwork/computer work. I had found that I didn’t have enough “alone time” in each day to record the daily meals. I wanted to be accurate, and I had school-agers eat only breakfast and snack, preschoolers come and go different days, and different part-time kids on different days. When the “food lady” would make her unannounced visits, I was consistently a day or 2 behind in just recording the meal attendance. I did my computer work every few days when I was not distracted so I would not make careless errors. Menus were up to date, and I had my own attendance marked for my personal use in another book. Anyways, I was going on the naughty list and needed to sign a form stating my records would be PERFECT, and for FOREVER. I couldn’t ethically sign that, so I terminated myself. Have you heard other providers leave the food programs for these reasons, or live in fear each day for the surprise visits to catch them with errors?

  3. Thanks very much for your comment. Yes, the record keeping rules of the CACFP are burdensome for many providers. Yes, other providers have left the Food Program for the same reason as yours. I’m working with Food Program sponsors to try to change this.

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