5 Common Mistakes to Avoid On Your Tax Return

Over the years I’ve seen a lot of tax returns and noticed some common mistakes made by family child care providers and tax professionals. Here are the top five:

1) If you have a car loan on a vehicle that is used in your business you are always entitled to claim the business portion of car loan interest as a business expense. This is true even if you use the standard mileage rate to claim car expenses.

The business portion is determined by dividing the total number of miles you drove in 2019 by the number of business miles you drove. If you drove 2,000 business miles and a total of 10,000 miles, your business portion is 20%. Claim on Schedule C Profit or Loss From Business, line 9.

2) Most providers use all of the rooms in their home on a regular basis in their business. This would mean that line 3 of Form 8829 Expenses for Business Use of Your Home would be 100%. If it’s not, check to make sure you counted all rooms that were used at least 2-3 times per week for your business.

3) Line 4 of Form 8829 is where you enter all the hours you used your home for business purposes. Did you include hours of business activities (cleaning, activity preparation, etc.) after the daycare children were gone? An extra 1.5 hours per week (78 hours a year) on such activities will increase your Time-Space Percentage by 1%. That’s worth tracking and claiming.

4) Are your Food expenses on Schedule C greater than the reimbursements you received from the Food Program? In most cases, they should be if you are using the standard meal allowance rule. Remember to include all the meals and snacks you served that were not reimbursed by the Food Program. You can deduct up to one breakfast, one lunch, one supper and three snacks per day per child, if you serve that many.

5) If you hired someone to help you care for children during the year, you should have treated this person as your employee and withheld Social Security/Medicare taxes, as well as withheld state and federal income taxes. If you didn’t follow all the payroll tax rules for 2019, consult with a tax professional to get you straightened out for 2020.

Tom Copeland – www.tomcopelandblog.com

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For a comprehensive checklist you can use to review your tax return, see my Family Child Care Tax Workbook and Organizer.