Common Mistakes Made on Family Child Care Tax Returns - Part II
In my previous article I described five common mistakes family child care providers are making on their tax returns. Here are a few more.
Space percent:
One provider didn't claim a bedroom and laundry room as regular use in her business. She was entitled to count the entire bedroom because she used it to store a lot of daycare items. Her laundry room is also regularly used by her business. Day care children do not need to be in a room for it to be considered regularly used in the business. Even rooms that licensing rules prohibit children to enter can be regularly used.
Hours when children are not present in home:
Most providers did a poor job of recording the hours they spent on business activities when children were not present in the home. Try to keep at least two months of daily records for such activities as: cleaning, activity preparation, record keeping, meal preparation, time on the Internet (reading my blog!), parent interviews and phone calls, etc.
Home depreciation:
Many providers failed to claim depreciation on their home. This is a large deduction that you don't want to miss. Some of these providers had never claimed house depreciation. I told them to file IRS Form 3115 to recapture any previously unclaimed depreciation.
Mileage:
You can't claim trips to the gas station to get gas or have your oil changed as business miles, unless the overall use of your car is more than 50% business.
Actual business use percent:
Some providers claimed different actual use percentages for items such as water (55%), cable television (65%), electricity (80%), and so on. Although you can calculate an actual business use percent on some business items, you should only do so if you have tracked the actual use for at least a month or two. This means recording on a calendar or some other place the business and personal use. Although you could do this for the use of the television or cell phone, it becomes extremely difficult to try to do for utility expenses. Typically, providers will use their Time-Space % for all shared items.
Estimated tax payments:
You cannot deduct any quarterly estimated tax payments as a business expense. Do not enter these expenses into Minute Menu.
Tax preparation fees:
You can only deduct the cost to have your business tax forms completed by a tax preparer. These forms include: Form 4562 Depreciation, Form 8829 Expenses for Business Use of Your Home, Schedule C, Schedule SE, Form 3115, and any payroll tax forms. Get your tax preparer to break out the cost of doing these forms from your other personal tax forms. If you use TurboTax, apply your Time-Space %.
Tom Copeland - www.tomcopelandblog.com
Image credit: https://www.flickr.com/photos/tofu_mugwump/15083417861My Family Child Care Tax Workbook and Organizer offers line-by-line instructions on how to fill out all of your federal tax forms.
