Ask Civitas: December 2024 Reader Questions Answered!

You have questions, we have answers! Since taking over Tom Copeland’s blog, we’ve heard from a lot of you who have questions about the business of family child care. Here’s a roundup of the latest questions we’ve received from all of you, via the Ask the Experts page.

Can’t watch the video? Here’s a transcript:

Question: We have a concern that comes up over and over and over again. It's probably one of the most popular questions that child care providers ask us, and that is: How do I find an experienced child care tax preparer?

Answer: And then unfortunately, our providers will reach out to us asking for support on their individual tax returns. We cannot do that equitably. We receive many, many requests for review of business taxes, and we understand the struggle as a family child care provider in finding a tax preparer. It is extremely, extremely difficult. So I'm grouping some questions together today and the answer applies to all of the questions.

Question: Someone here basically said that they filed a tax return in 2023 and they don't think that it's right because they closed the business halfway through 2023 and then they had a personal tutoring business for the remainder of the year. Someone did their taxes. They're very concerned that those 2023 taxes may not be correct, and they are asking for our support.

Answer: We cannot provide that support at Civitas. However, we are going to talk about how you could find a tax preparer, some ideas that we have for that.

Question: We have somebody else who said, "I hope that there might be a tax professional you guys could connect me to who specializes in family child care." And then they explained basically that they have been open for a few years. A tax preparer told them they were going to get a refund. They heard back from the IRS that they actually owed. So they have a very unfortunate situation there. They need to provide some documentation to their health insurance company, and they're a little concerned about where they would find that. So I'm going to give you the guidance that we basically discuss with everyone who are coming to us asking for a professional tax preparer or for us to look at taxes there.

Answer: So obviously like we said, we understand it is very difficult to find a tax preparer who is experienced in family child care, and we do hear this on a daily basis and also during all of the presentations that we give on taxes. So we understand that it is a real struggle. Family child care, as you know, your tax needs are very, very specific and you do want to engage and hire a tax professional who understands family child care businesses there.

So what do we suggest? We do not have a list. And to be perfectly honest, there's no way we can have a list of tax preparers across the country. So my first recommendation always is to go to your child care community. Reach out to your peers. Go through your network. See and ask, does anyone have any recommendations for a child care tax preparer?

We would like to find someone who they have found to be successful. So the first thing, hey, let's look into our community. You also can post for social media groups asking again, does anybody have a tax preparer, and you just say your area because a lot of times there are methods of support through those social media groups that really end up being great resources.

So we want to ask our network. We want to ask any social media groups that we belong to for child care there. The next thing I'd like you to do is to also speak to any child care providers about their bookkeepers or if you have a bookkeeper. Bookkeepers often work very closely with tax professionals. They may have some resources that you could reach out to. They may be able to refer you to a child care tax preparer.

So if someone isn't able to provide you with the name of a tax preparer themselves, find out who they're using for their bookkeeping and reach out and see if they happen to have any recommendations there. While it's not as good as a one-on-one referral, I would recommend doing a Google Search for CPAs in your area. So CPAs are financial professionals who often prepare taxes.

So sometimes when we're looking for a tax preparer, that's all we're referring to in our search. We're looking for tax preparers. Perhaps you might want to connect with a CPA. So I do recommend that you look into and do a little bit of an online search for CPAs in your area. And when you speak to them, you're going to want to ask, are they experienced with family child care in terms of taxes? You can ask them to explain the time-space calculation to you.

What do they know about the time-space or the business use of home? Feel free to ask them a couple of questions that you know are relevant to child care taxes. So that is something that you can keep in mind there. We really do recommend that you reach out to the Child Care Resource and Referral, which you may know as the CCR&Rs, in your area there in your state because they actually may have some resources.

And I'd like you to think about any organization that recently put on a presentation that you attended, allowed you to attend a webinar where you got some continuing education credit. I want you to think about that organization and reach out to them because they are also another means of support. We know that this is a never-ending struggle and that family child care businesses are terribly underserved when it comes to taxes.

Here's my first mention of our YouTube channel. I would like you to reach out to our YouTube channel. Again, go to YouTube, search Civitas Strategies, and then I would like you to actually look for, just put in the search bar, tax preparation strategies for child care businesses and you're going to see a recording. There are actually coupled with the same title.

It's the same content. You're going to see recordings of webinars that we have presented recently because those webinars do touch on some fundamental topics that you'll want to be educated on for your family child care taxes. So I definitely recommend that you please go to the YouTube channel and watch that recording, watch that webinar that we presented there.

Question: Our next question is: we have somebody who didn't keep track, I guess, of their expenses and their income throughout the year. They say, "I've not kept track all year. Is it too late now to file taxes?" They say for 2024, "I've never filed before." So keep in mind, for 2024 taxes, your deadline is April 15th, 2025.

Answer:  I'm recording this in January of 2025. So in this instance, we would have a couple of months.

However, you are going to need your documents in order to file your taxes. You're going to need all of those financial documents. What I would like you to do is to go to the website that I'm referring to, civstrat.com, so it's short for Civitas Strategies. I'd like you to go there. At the top of the page, first of all, there's going to be links. You're going to see a little banner for links for tax preparation tools, things that you can use for tax preparation.

I'd like you to go there, hunt around a little bit, click on some links and see some of the tax resources that we have available. On the same website, I'd like you to click on resources and go ahead and review how to create a record keeping system. That's a guide that we offer on our website. So I would like you to take a look at that. Again, that YouTube presentation that I referred to before, tax preparation strategies for child care businesses, that can give you some support.

I do recommend that you... There's a wonderful resource, if you search Home Grown Taxes Workbook, you may only find the 2023 version. So Home Grown Taxes Workbook. Go ahead and search for that and you're going to find a very valuable resource for family child care businesses. So that basically is my recommendation. You're in a difficult position because you haven't kept track of all of your expenses perhaps and your income.

I know that you said that you haven't been keeping track all year. You are going to have to hunt those things down. You're going to be having to look at your bank statements, your credit card statements, perhaps your payment app statements. You're going to be hunting for receipts. It's time to have a formal record keeping system so that you don't run up against this next year.

But in order to file your taxes properly to receive the... Basically to have the tax liability that you deserve, basically bottom line that your taxes are what they should be, you're going to have to find that documentation. I wish you luck. I think you do have a lot of work ahead of you there, but please, please make an effort to find all of those documents there.

Question: The next question we have is, as a home daycare provider, am I required to file with FinCEN, the Treasury Department FinCEN, on beneficial ownership information? That's known as BOI. So do I need to file BOI?

Answer: If you are a home child care provider and you file your taxes, you claim sole proprietorship or partnership, you will not need to register with BOI. You will not need to go to the FinCEN website and record your beneficial ownership information.

You do not need to do that. However, as soon as you have the business structure of LLC, even if you are a family child care and you're just a single member LLC, you do have to file BOI. So BOI, basically as soon as a business is considered to be an LLC, they are going to have to file BOI, as would corporations, as would S corporations and C corporations. I'm going to refer you back to the YouTube channel.

Go to YouTube, search for Civitas Strategies, open up our channel, and I'd like you to search for BOI. And there, you're going to see a 90-minute presentation that we recorded that will walk you through BOI. Yes, we are past the deadline. They gave it a little extension, and I think we're at that extension. Or by the time you see this, we'll have been past that extension, but you still need to file.

Do not put it off. If you did not do it in 2024, please file as soon as you absolutely can. It's very, very easy. There is no need to pay someone to file your beneficial ownership information. So please go watch the video at the Civitas Strategies YouTube channel. Again, you can just search BOI and you will find information that will walk you through that whole process. I really think that that will do you a great service.

Question: We have somebody here who says, "I have two in-home child cares. I own both houses." Talks about the space in the homes that are being used for child care and the time-space percentage. And what they're asking is, should they be an LLC or an S corporation? And the question that they ask here is, is it true I am only protected to the percentage that is my personal part? Which is better for taxes?"

Answer: So when we talk about S Corporations and LLCs, the circumstances of deciding what business structure is best for you can be complex. Forming an LLC, single member LLC, does not automatically offer tax benefits. So a lot of people misunderstand and think that if they change their business structure to an LLC, there are automatic tax advantages. Where the tax advantages come into play is you can be an LLC and then you can elect to file as an S corporation or you can become an S corporation.

But there are some intricacies there, there are some things that you need to take into consideration when that starts to make sense to do that. And that is a great time to speak to an attorney, a CPA, a accountant, or a tax professional about what your business structure should be. We want to take a look at that. There was a question, part of the question there had to do with where the responsibility is in terms I think of liability.

So when you become a limited liability company, an LLC, your personal assets are not tied to the business even if you are a family child care provider, even if your business is in your home. As soon as you become an LLC, everything that is your personal is separated from the business. So whatever happens in the business, if there's a loan that you can't pay, there's a lawsuit, if there's something negative that happens, you as an LLC, they cannot go after your personal assets.

Now, if you are a sole proprietorship and something happens with the business, your personal and your business are completely interwoven. There is no separation in terms of business assets and personal assets. So if something were to happen through the business, you were sued, there was a problem with the business loan, but you were a sole proprietorship, you will be responsible for that. Your personal assets can be taken.

So that's where becoming a limited liability company, an LLC, provides you all of this additional protection. So it is always smart to keep the business and the personal separate. We want to protect our personal assets. So I recommend that, again, let's speak to somebody who can advise you on business structure. And most likely as a business, you are going to hear a lot about the recommendation of becoming an LLC.

So keep that in mind when you speak to a professional about business structure. Basically protecting your personal assets by just the business being liable for anything that happens with the business. And that's the case with family home child care providers, and that would be our recommendation there. We speak to a professional and determine what is the best business structure for us.

I also happen to have a video on YouTube for business structure. Let me just find the name of that actually. It is, Should I incorporate my business? So go to the Civitas Strategies YouTube channel. Should I incorporate my business? Excellent video that will give you some guidance, but it is not a replacement for speaking with a professional. So I hope that that covered your questions.

It's a great thing to know about what business structure benefits you, but keep in mind, a single member LLC does not offer you tax benefits. It's not until as an LLC you elect to file as an S corporation or become an S corporation that you will start to see the benefits on taxes because it does potentially lower the... Remove the situation where you would be paying the self-employment taxes, the 15.3% self-employment taxes, on all of your profits.

So great question. Tax professional, accountant, CPA, just walking you through when that becomes beneficial.

Question: Now, our next question is really, really unfortunate. I'm not going to read the whole thing, but basically what it looks like is that a family accused a child of... It looks like some very inappropriate behavior. So they accused one of the other children in the child care, and now the family that is making the accusation, it looks like that they have retained a lawyer.

And so what is happening is that it looks like now they're getting letters, the child care provider is getting letters from the attorney that represents the parents of the child who they are saying was assaulted, that was involved in this. We'll say the victim. The victim in this situation. And they asked for insurance information and they asked for it looks like several different kinds of documents or things that they should use that the attorney needs to they said preserve evidence.

Answer: I'm going to recommend, now you've got this attorney calling you, yes, it is an added expense, but I would recommend basically engaging the services of your own attorney. It may not be complex, but this is something that happened in your business. I'm not sure if you're a limited liability corporation. I'm not sure if you're a sole proprietorship. You really do need to see a lawyer.

So in these instances, whenever something like this comes up, please get professional legal advice as soon as you can. Better to be safe and be over-prepared than under. So in those types of circumstances, we are always going to educate you to please speak with a licensed... An attorney is really where you should be speaking to on here.

Question: We have an individual here who... Let's just take a look there.

Well, so we have an individual... I apologize there. So it looks like they have been... Oh, they're having some difficulty with managing their paperwork. I apologize. And what they were asking us about were scanners and how are they going to have this document organization, how are we going to go about that? They have a tight budget. What should they do? They were thinking of a portable scanner. The problem is they don't know which one to choose.

They don't know where that information would be stored, how they access it when it's needed.

Answer: So there are several kinds of portable scanners that you can buy, and often the information that you scan is downloaded into your computer, into a folder that is created when you connect the scanner to your computer. Everything that you scan would then go into that folder and you would save it in your computer as you wish, however you break it up.

I do like to mention that there are apps both for Apple phones and for Androids that are scanner apps that are as simple as taking a picture of a document. It saves it as a scan. Some save them as PDFs. But basically it's not the same as just taking a picture, but it's as easy as taking a picture. And some of these scanner apps are free up to a certain point, and they did say that they wanted something that did not have a recurring subscription fee because of their budget.

I, unfortunately, do not know what the costs are if you have to go to a paid version. But there are these scanner apps. And what do they do? You take a picture of the document. It addresses it as if it is a scan of a document. It puts it into a folder on your phone. And then if you don't ever connect your phone with your computer, really what you would do is take that folder that's in your phone and email it to yourself, and then you would be able to have a safe place to keep your documents.

We also always recommend, if you're able to, please keep your paper documents so that you have two resources that you're basically protecting, having a backup system. So scanners, having a handheld scanner is fine. Usually they connect to... It could be wireless through Bluetooth, or it could be a physical connection. And information that is stored by scanning then is inputted into your computer and you'll need to create a place in your computer where those scans would go.

So it's not difficult, but it does require perhaps a little playing around. I just happen to know of smaller business owners that have been very successful with scanner apps. So just keep that in mind. Other businesses, to be honest with you, just choose to take pictures of receipts, make an album, make a folder in their photos. Put those pictures there and use that as their documentation.

Just actually use pictures. So it's really whatever your comfort level is with technology, whatever your budget is, whatever is the most convenient for you. I'll refer back to our YouTube channel, because if you go to the Civitas Strategies YouTube channel, we do have a recording for a video that is technology and automation resources. So that may also be helpful. So I would recommend that you do that.

Question: Now, our next question is I'm not going to have an answer today, but I would like this particular provider, her first name is Cecilia. Cecilia has an issue with her EIDL loan. So she applied for an EIDL loan during the time of the pandemic, and now those EIDL loans have come due.

Answer: Some businesses were able to file for what's called a HAP extension, HAP forgiveness.

I shouldn't say forgiveness. A payment plan. You still have to repay the loan, but helping you manage those payments. And that's what the Small Business Administration offers on those EIDL loans. She's having a real difficult time. Cecilia, I can see here that basically it looks like they're looking to put garnishment against you and you have some really challenging family circumstances.

So Cecilia and anyone else that is really suffering right now because of EIDL loans, because of the fact that those were not forgivable like a PPP was forgivable, an EIDL loan was not, what I'm going to do before our round the first week of February, I want you to keep checking back to tomcopelandnlog.com or on Ask the Experts or any place that you found this video.

It'll be short, but I'm going to record a video with the education we can provide about EIDL loans now that you're in these circumstances for repayment. So I'm doing that, just recording it separately because there is quite a need for it and I would like people to be able to search for information about situations regarding EIDL loans. So that is the reason that I'm going to make a separate video for that.

Certainly not looking to put you off at any point, but we do want to make sure that that's a resource that's valuable for everybody because we are hearing about EIDL loans and some really difficult circumstances. So we'll be able to provide you and anyone else that has a problem with an EIDL loan in a separate video. So please continue to look for that. We're more than happy to record that information.

I would just like for our child care providers and other small businesses to be able to find the education that we can give you, what we can give you education-wise on EIDL loans. So please take a look for that in the very near future. Again, I'm recording this in January of 2025. The goal is to have that video by the very beginning of February 2025. So that is what we are looking for.

That wraps up our September 2024 questions from the Tom Copeland blog's Ask the Experts! Remember, with over 1,500 resources available at TomCopelandBlog.com, many of your questions may already be answered within those guides and articles! Don’t forget to also check out the Civitas Strategies YouTube channel, where you'll find over 600 helpful videos to guide you.

Thanks for all of your questions. We will be back next month with more answers for you, so keep sending your questions in!