Webinar Recording: How To Get Organized For Your 2021 Taxes
Here's the recording of my recent webinar, "How to Get Organized For Your 2021 Taxes."
The webinar was sponsored by the KidKare online software program.
In this webinar I covered:
What are the new tax changes for 2021
What you can deduct as a business expense in 2021 and 2022
How to enter your business expenses into the KidKare software program
What information should you give your tax professional
What key KidKare reports will help with your taxes – whether you do your own taxes or use a tax professional
KidKare is a comprehensive record keeping program that includes an accounting section that allows you to track all your income and expenses. You can use it for free during a 30 day trial period. Afterwards, it costs $99.00 a year. If you do sign up to use KidKare, enter the code 0659 to help support my work helping providers be more successful in their businesses.
Questions and Answers
Here are the many questions raised during the webinar and my answers below.
Stabilization Grants
Q: Where do I look to find the stabilization grant for my state?
A: See my article, "Update on the Child Care Stabilization Grants."
Q: Must I report the stabilization grant as income?
A: Yes.
Q: Why are all our COVID grants taxed?
A: That’s what Congress decided.
Q: Do states vary on the amount they give out?
A: Yes. States got differing amounts of money and made different decisions about how to distribute it.
Q: I’m confused about reporting the grant as income and then deducting it as a business expense.
A: Grants must be reported as income. When you spend any of the grant money on items for your business, you can deduct that. So, if you got $5,000 as a grant and spent $4,000 on items used exclusively for your business, you would show $5,000 as income and $4,000 as an expense. You would then pay taxes on the difference of $1,000.
Q: If I use this grant to waive tuition, can we claim that as an expense?
A: No.
Q: I receive this grant under my name and not under my business name. How to I report this?
A: Report the grant as business income. It doesn’t matter that you received the grant under your name.
Q: If I write myself a payroll check, can I use it to pay taxes I owe to the IRS for past years?
A: Yes. Once you pay yourself with the Stabilization grant, you can then spent it however you want, including paying back taxes.
Q: How do I prove that I am paying myself? What do we need for proof to show our accountants?
A: There are three ways: Transfer money from one bank account to another, write yourself a check or leave the money in a bank account and label it as money you paid yourself. See my article on "What Does it Means to Pay Yourself With the Stabilization Grant."
Q: When you say “pay yourself” do you actually write yourself a check or if I leave it in my bank account and record it as “wages.”
A: Either way works.
Q: How much money should I put away for taxes on this grant?
A: You will pay taxes on any money you don’t spend on items for your business. The amount of taxes you will owe will vary according to your family’s financial situation. Withholding about 20% for taxes is probably reasonable.
Q: Can the grant be used to contribute to my IRA?
A: Not directly. But, once you pay yourself with the grant, you can then use it to contribute to your IRA.
Q: Where is Tom’s article on how to pay myself with the stabilization grant?
A: See: "What Does it Means to Pay Yourself With the Stabilization Grant."
Q: We were told we don’t have to report grants as income. As long as we spend it on business items and have receipts, we won’t have to pay taxes on it. True?
A: You do have to report the grant as income. However, if you spend it all on items used exclusively for your business you won’t owe any additional taxes.
Q: When I applied for the grant, I didn’t choose payroll for how I would spend the rest. Is it okay to pay myself?
A: Yes.
Q: I thought the stabilization grant was only taxable when I didn’t spend it all on business items. Do I only pay taxes on the amount left over?
A: That is true.
Q: May I use the stabilization grant towards a parent scholarship and then claim it as a tax deduction?
A: You can give out a parent scholarship, but you can’t then claim it as a tax deduction.
Q: If I pay myself, do I have to pay employee taxes on this money?
A: No.
Q: Can I pay myself in one lump sum with the grant or should I do it weekly?
A: Either way works.
Q: If I report the grant as income, can I use the money for a business deduction?
A: Yes.
Q: If I use all the grant money to pay myself, what would I put in the memo line on the check?
A: “Stabilization grant paying myself."
Q: I am in my 60s. I want to use the grant money for my retirement. Is this a good idea tax wise?
A: Yes, it is always a good idea to contribute to your retirement. If you contribute to any IRA except a Roth IRA, you will reduce your personal income taxes.
Deductions
Q: I had to replace my boiler and upgraded from gas to oil. The total cost was $16,138. How do I deduct it?
A: This is a home improvement you will have to depreciate over 39 years.
Q: I only see a second phone line listed in KidKare as an expense category. Can we not count our personal phone line as an expense?
A: You can’t deduct the first phone line into your home, whether it’s a land line or cell phone. You can deduct the business portion of a second or more phone lines you use for your business.
Q: Is a second mortgage and home equity loan mortgage deductible?
A: Yes. Apply your Time-Space Percentage.
Q: When we calculate the cleaning expenses, do we add the taxes we paid?
A: Yes, always include any sales taxes you pay with purchases for your business.
Q: Can we deduct lunches for employees?
A: You can deduct 100% of the cost of lunches served to employees in your home. You can either deduct the actual cost of the food or use the standard meal allowance rate. You can deduct 50% of the cost of a lunch served to employees away from your home.
Q: If I had to build a fence to become licensed, but really didn’t want to and wouldn’t have paid for it if it was just for your household, can I deduct the full expense of the fence?
A: Yes, you can deduct 100% of the cost of a fence that was required by your licensor.
Q: I had to replace my air conditioner, can I deduct that?
A: Yes. Apply your Time-Space Percentage and deduct in one year.
Q: Do I count the drapes and furniture in a bedroom or do I just deduct the drapes and furniture in the daycare area?
A: If a room is used regularly for your business (2-3 times per week by you or the children), then you can deduct the drapes and furniture. Otherwise, you cannot deduct these expenses if the room is only used for personal purposes.
Q: As a gratitude, can I take my family on vacation and deduct it?
A: No. Nice try.
Q: Can a massage be deducted as a medical expense (mental health)?
A: No, these are considered personal expenses.
Q: Can I deduct the gas for my lawnmower?
A: Yes, apply your Time-Space Percentage.
Q: Is medical insurance or medical bills deductible?
A: Not as a business expense. If you itemize your personal tax return, you might be able to claim these expenses.
Q: Is a roof repair need to be depreciated or could it be deducted in one year?
A: A roof repair is not a home improvement, it’s a repair that can be deducted in one year.
Q: We finished our basement this year, but I won’t be using the space until 2022. Can I deduct it this year or next year?
A: Next year.
Q: How do I deduct rent and utilities if my boyfriend pays half?
A: You can only deduct the Time-Space Percentage amount you paid for these expenses.
Q: I need a new fence and new driveway. Is there still a tax incentive for deducting this faster in 2022?
A: Yes, the 100% bonus depreciation rule still exists in 2022, but not beyond. So, you can deduct your time-space% of these items in one year.
Q: How much can I use in donations to churches and other organizations as a tax deduction?
A: Charitable contributions cannot be deducted as a business expense.
Q: What is the best way at the end of the year to boost your tax deductions to avoid paying so much in taxes?
A: See my article, "End of Year Tax Savings Tips."
Q: Can I deduct a shed if it’s used to store daycare toys used 100% in my business?
A: Yes, you can deduct the cost of the shed. Unless the shed is permanently attached to the land, don’t add the square footage of the shed in calculating your Time-Space Percentage.
Q: Can I deduct my gym membership and monthly massages?
A: Nope, this is personal.
Q: I read somewhere that tax preparation fees are no longer tax deductible. True?
A: You can only deduct tax preparation fees related to fill out your business tax forms, not your personal tax forms.
Q: When I’m deducting my shed at 65% actual business use, will taking pictures of the shed help me prove that it’s used 65% for business?
A: Yes.
Q: If my insurance paid for a new roof, may I deduct the cost?
A: You cannot deduct the amount that insurance pays for a new roof. You can deduct the business portion of the amounts you may pay out of your pocket (deductible).
Q: Is a mattress deductible, even a mattress in my bedroom, or just my child’s bedroom?
A: If children sleep on your bed, you can deduct the Time-Space% of your mattress, blankets, sheets, and pillow. If they don’t sleep on your bed at least 2-3 times per week, you cannot deduct the mattress or any other expense associated with the bed.
Q: Self-care is a big push for professional development. Can I claim the hour I do yoga daily?
A: Nope, this is personal, according to the IRS.
Q: Can I deduct a massage, pedicure and chiropractor as an expense?
A: Nope.
Q: Can I deduct home owners association fees?
A: Yes.
Q: If I ordered art supplies on Amazon for my business, do I use the amount it cost or do I include taxes and delivery fees?
A: Include taxes and delivery fees as part of the expense that you can deduct.
Q: Can I deduct vet bills and pet supplies and food if my pets are a part of the daycare program?
A: The only expense you can deduct for a dog or cat would be vaccinations, but only if you were not required to vaccinate your dog or cat if you were not licensed as a provider. You can deduct the business portion of other pets such as fish, gerbils, ducks, chickens, etc. but only if you incorporate these pets into learning activities with the children.
Q: Is there a limit of what we can deduct for start-up supplies if they were bought in the calendar year before my daycare was opened? For example, I bought these supplies in December, but will open in January.
A: There is a $2,500 limit on start-up expenses such as your supplies.
Q: Is rental insurance deductible?
A: Yes.
Q: Can I deduct a computer laptop. I was told I couldn’t deduct the full amount, but use 90% for my daycare. This doesn’t make sense to me.
A: You can deduct the business portion of a laptop. You can apply your Time-Space Percentage or you can track the actual business use and deduct that amount. If you use it for personal use, you cannot deduct 100% of the cost.
Q: If I put up Christmas light display outside, would some of this be deductible?
A: Yes, apply your Time-Space Percentage.
Q: I am going to school for my Associates Degree in early childhood education. Can I deduct the cost and time spent on getting my degree?
A: If you already have a previous post -secondary degree then you can deduct the cost of the classes and the time you spend in your home when children are not present. If this will be your first post-secondary degree, you can’t deduct any of the cost or count the time.
Q: I remodeled my kitchen this year. What is the best way to deduct it?
A: This is a home improvement that must be depreciated over 39 years.
Q: Can I use my bank statements if I don’t have receipts for my deductions?
A: Yes, but you should also make a written record indicating what the items were. In the future you always want to keep receipts.
Q: What can I deduct after putting in a new cement driveway, walkway, front and back steps and patio. It cost over $20,000. Do I apply my time-space%? Do I have to depreciate it?
A: These are repairs you can deduct in one year, no depreciation. Apply your Time-Space Percentage.
Q: It’s my first year being licensed. Is it common to see a loss for the first year due to initial start -up costs? Can I claim the costs of fences, windows, deck repairs, etc. we did before I was licensed, if it was done the year before?
A: It is common for a provider to show a loss in her first year. Don’t worry about this. Yes, you can claim these costs once your business began.
Q: Can I deduct uniforms for employees and T-shirts for my daycare children?
A: Yes.
Q: If I change out my carpet for hardwood floors, is it a home improvement or a repair? Can it be deducted in one year?
A: If you are adding hardwood floors to less than half of all the floors in your home, this would be a repair you can deduct in one year. If you are replacing more than half of the floors, it would be considered a home improvement that you would have to depreciate over 39 years.
Q: Do I deduct the entire amount of a tip given to the person who delivers food to my home or half the tip?
A: I’d deduct your Time-Space Percentage cost of the tip.
Q: Can I pay my husband to build lockers and an art cabinet for the daycare and write it off as an expense?
A: Yes, but he would have to report this as income.
Q: Should supplies specific to COVID be listed separately from other supplies on my taxes?
A: It doesn’t matter. You can do it either way.
Q: Are the SBA grants deductible?
A: If you received money from the Paycheck Protection Program (PPP), it’s not income for federal taxes, but it may be income on your state taxes. You can deduct expenses you purchase for your business.
Q: I care for my grandchild for free. Can I still take the full deduction on expenses?
A: No. Because you are not being paid to care for your grandchild, this is considered a personal, not business relationship.
Q: How is tree removal expenses differ from landscaping expenses?
A: Tree removal is treated as a repair that can be deducted in one year. Landscaping has special rules.
Q: Is an irrigation system deductible?
A: Yes, deduct your Time-Space Percentage of the cost in one year.
Q: Can I deduct the costs associated with farm animals such as the cost of the animal, food and a fence?
A: Yes, if you incorporate the farm animals in learning activities with the children.
Q: My licensor said I need to replace our rotted deck. How do I deduct this?
A: If you replace some of the deck boards, treat it as a repair in one year. If you are tearing down the old deck and replacing it with a new deck, treat it as a home improvement you must depreciate over 39 years.
KidKare
Q: Does KidKare figure out depreciation for me?
A: No. You can enter your larger expenses into KidKare, but it won’t calculate depreciation. You probably have very few items you will need to depreciate. The only items to depreciate are your home, a home improvement and a home addition.
Q: Can a KidKare expense be 100% deducted for my business, even if I track personal expenses on KidKare?
A: You can enter both business and personal expenses into KidKare. You can’t deduct your personal expenses. You can enter expenses that are 100% business as well.
Q: How can I pay myself through KidKare and prove it to receive a forgiveness for the Paycheck Protection Program (PPP)?
A: You can enter the PPP money as income into KidKare. You can create a new income source and label it as “PPP paying myself.”
Q: We are allowed to claim three meals on KidKare for reimbursement from the Food Program. Can we claim all the meals served each day on KidKare?
A: KidKare allows you to enter up to six servings a day per child, if you serve that many. If you are using KidKare with a Food Program sponsor, ask your sponsor if you can enter more than three servings a day into KidKare.
Q: When entering expenses into KidKare, do I still need to save the receipts?
A: Yes, definitely.
Q: Is KidKare only available in English?
A: Yes.
Q: Will my time-space percentage on a KidKare report go up if I enter more hours that I worked?
A: Yes! See my article, "Questions and Answers About the Time-Space Percentage."
Q: Is the KidKare annual fee deductible?
A: Yes, 100%.
Q: If I’m entering an extra snack that is not reimbursed by the Food Program, do I need to add it in the menu section of the software?
A: Yes.
Q: If I use KidKare is it beneficial to use TurboTax?
A: I don’t like TurboTax. However, if you are entering all your income and expenses into KidKare, it will make it much easier to use TurboTax. Watch for my review of TurboTax in January.
Q: If I use KidKare for my expenses starting this month, can I go back and load expenses for January-November to get a complete year for my tax preparer?
A: Yes!
Food
Q: If I’m not using KidKare, do I need to save food receipts?
A: If you are using the standard meal allowance method to claim food expenses you don’t have to save any food receipts whether or not you are using KidKare.
Q: To calculate the number of snacks served to children as a food expense, do I need to be on the Food Program to use the standard meal allowance method?
A: No. But, you should join the Food Program because it will benefit you financially.
Q: Can we claim only one snack or two?
A: When using the standard meal allowance method you can deduct up to one breakfast, one lunch, one supper and three snacks per day per child, if you serve that many.
Q: Do I need to tally up all my food receipts or just keep them?
A: You only need to keep food receipts if you are using the actual cost of food method where you estimate how much you spent on food for the children.
Q: If I’m on the Food Program can I also claim the standard meal allowance for each meal on top of that?
A: You can count all the meals and snacks you were reimbursed by the Food Program as well as extra meals and snacks you served that were not reimbursed. You can only deduct a total of one breakfast, one lunch, one supper and three snacks per day per child.
Q: I serve breakfast, lunch and a pm snack. If I do a random am snack and sometimes an additional pm snack, can I deduct an additional two snacks per day?
A: Yes.
Q: Is it true that if I’m on the Food Program I don’t need to keep food receipts?
A: Whether or not you are on the Food Program you don’t need to save food receipts if you are using the standard meal allowance method to claim food expenses.
Q: When I use the actual expenses method to claim food expenses, do I need to have both personal and business food on the same receipt. Often I only shop for child care, so do I need to keep receipts that have only personal food that I purchase at other times?
A: You need to save all food receipts, business and personal. It’s okay to have both on one receipt.
Q: If I didn’t save my personal food receipts, am I able to print off bank statements to show the amount I spend on personal groceries?
A: Yes. But, it’s not a perfect solution since you could have purchased non-food items along with the food.
Q: Do I need to report the reimbursements I receive from the Food Program as taxable income?
A: Yes.
Q: I’m not using the standard meal allowance method to claim food expenses and I do child care away from my home. Do I need to keep personal food receipts? It seems that I’m spending more on child care food than the standard meal allowance, so I’ve only been keeping grocery receipts.
A: Yes, you need to save personal food receipts.
Q: Can I deduct meals and snacks served to my employees? If so where and how?
A: You can deduct 100% of the cost of food served to employees in your home. You can deduct 50% of the cost of food served to your employees away from your home.
Q: If I serve a pm snack at 3pm, can I serve an evening snack at 5pm as well?
A: Yes.
Q: I can simply use the monthly reimbursement I receive from my Food Program as my food expense?
A: Big mistake. The reimbursements you receive will never be exactly the same as the amount you can deduct as a food expense using the standard meal allowance method. If you serve even one extra snack that is not reimbursed by the Food Program, you food expenses will always be higher than your reimbursements.
Q: I don’t save food receipts since I’m using the standard meal allowance method. Do I count up the meals and snacks I served and then multiply these numbers by the standard meal allowance rate and that represents my food deduction?
A: Yes.
Q: Which is better – the standard meal allowance method or the actual food cost method?
A: The fast majority of providers use the standard meal allowance method. If you live in a high cost area or serve expensive food, you may be better off using the actual food cost method.
Q: If I use the standard meal allowance method for the extra snack, may I also claim the food receipts?
A: No.
Vehicle
Q: Do I need my food receipts for mileage to and from the store?
A: A receipt from grocery store is an adequate record to claim mileage to the store.
Q: Can I deduct our new tires?
A: Only if you use the actual cost method in claiming vehicle expenses, not the standard mileage method.
Q: Is it better to lease or purchase a vehicle?
A: In almost every case it’s better financially to purchase a vehicle.
Q: I bought a new van that I’m using exclusively for my business. How do I deduct the cost?
A: If the van weighs more than 6,000 pounds, you can deduct the entire amount. If it weighs less than 6,000 pounds, there is limited to a little more than $18,000.
Q: May I write off the mileage and my time when I go to a daycare association meeting?
A: You can count the miles, but not your time.
Time – Space Percentage
Q: How do we calculate our time-space percentage when my husband both and I are working out of the home for separate jobs?
A: You can count the hours your husband spends on your business when children are not present. If you are both working at the same time you can’t count the time twice.
Q: I’m doing electrical repairs on the entire house for safety purposes. Do I apply my time-space percentage to the cost?
A: Yes.
Q: We replaced the flooring in our home this year. Is it deductible based on the time-space percentage?
A: Yes.
Q: What is the average time-space percentage you see for family child care providers? Mine is close to 60%. Is that going to be a red flag for the IRS?
A: Most providers probably have a Time-Space Percentage between 30-40%. However, many providers have a higher percentage. 60% is not a red flag to the IRS. Claim whatever your percentage may be based on your accurate records. I’ve won IRS audits of 98%!
Q: If someone else is in my home doing day care work while I’m away, can I count that time towards my time-space percentage?
A: Yes.
Q: Can I could the time spent snow blowing as part of my time-space percentage calculation?
A: Yes, because you would not be snow blowing at that time of day if you weren’t in business doing child care.
Q: Do I count outdoor space if a large part of my program is done outside?
A: No. Only count the house and other structures.
Q: TurboTax helps you calculate your time-space percentage, but has it figured out a way to apply it to my expenses?
A: No. When you enter expenses into TurboTax, it will assume that you can deduct 100% of the cost. Therefore, you must take into account your Time-Space Percentage of an expense before entering it into TurboTax.
Q: Can I count time if I attend a class or attending child care association meetings that are on Zoom in my homes?
A: Yes, assuming day care children are not in your home during that time.
Q: We removed a tree. Do I deduct the entire amount or part of the cost if it’s in the front of the main entrance to my home?
A: Apply your Time-Space Percentage.
Q: My daycare is mostly in my living room and kitchen. Would those square feet be considered 100% daycare use?
A: You can only count a room as 100% business space if you never, ever use it for personal use. I assume you use your living room and kitchen for personal purposes, therefore these rooms are not 100% business space, they are regular use space.
Q: We replaced all the windows in our home. Can we deduct the full amount or the time-space percentage?
A: Apply your Time-Space Percentage because you are using the windows for business and personal use. You must depreciate this over 39 years as a home improvement.
Q: What if my time-space percentage is about 80%. Would that be a red flag for the IRS?
A: Whether it is a red flag or not, you should claim your percentage based on your records.
Q: I do child care in a business space instead of my home. Is it more beneficial for taxes to do child care in my home or in a business setting where most of the items are 100% business us? I’m not sure if there are other home and car expenses I can deduct since my business in not in my home.
A: There is no simple answer to the question of whether or not you are better off financially by doing child care in your home or in another location. If you do child care in another location you can deduct 100% of the costs associated with that home and everything in it. However, you are then not able to deduct any of the house related expenses in the home you live in.
Q: What is the process for documenting cleaning when children are not present? How long should I do that? When should I start?
A: Make a note on a calendar or some other place when you are cleaning. So, it might say: “Monday, 6-7am cleaning.” Track these hours carefully for at least two months each year. If the average hours for those two months are typical for the rest of the year, use that average for all months. Start now!
Q: Would the time I spend doing laundry in the laundry room count as hours spent working in my home when children are not present?
A: Yes, you can count the hours. You can’t count the time the clothes are in the washing machine or dryer unless you are watching it the entire time!
Q: How do I claim the time spent listening to you tonight?
A: Write on a calendar or some other place, “Tom Copeland Zoom class on taxes, 8-10pm, December 13, 2021.”
Q: I take college classes for a short certificate required by our state after hours. Can I claim these hours?
A: Yes.
Q: Can I count the time my husband and our own children spend snow blowing, lawn mowing putting up Christmas lights, shopping, etc.
A: Yes for snow blowing and putting up Christmas lights, no for lawn mowing and shopping. You would mow the lawn the same amount of time if you weren’t in business. You can’t count times spent away from your home shopping.
Q: I work on a teacher’s schedule. I am closed June and July the days school is out. How do I claim the time-space percentage?
A: See my article: "Will You Take Time Off This Summer?"
Q: Can I record the time I spend on online classes for College?
A: You can only count this time if you already have a post-secondary degree.
Q: If I put siding on my hours, do I apply the time-space percentage?
A: Yes.
Employees
Q: Is it advisable to pay myself as an employee? Put myself on payroll?
A: If you are a sole proprietor (self-employed) you don’t pay yourself as an employee because all the money you earn is automatically yours. Don’t put yourself on payroll.
Q: If I hire my spouse to work in my business, will my spouse have to pay taxes on the money I pay him? What if he works as my handyman?
A: Yes, you will have to withhold Social Security/Medicare taxes and he will have to report the money as income. There are no significant tax savings to hiring your husband.
Q: If I hire my 18 year old would he have to pay taxes on this income?
A: You will have to withhold Social Security/Medicare taxes. He or she may not have to pay income taxes if he or she earns less than $12,950 for 2022.
Q: Can I hire my kids ages 16,17,18, 19 and 27 and use that as a tax deduction?
A: Yes. You must keep proper records.
Other
Q: Do you suggest a real person or online tax preparer to do my taxes?
A: See my article, "How to Find, Chose and Work with a Tax Professional."
Q: Should I file my business income separate from personal, or can I put it in with my husband’s return?
A: In almost every situation you will want to file your taxes jointly with your husband.
Q: I’m under my husband’s medical insurance policy and we each pay an out-of-pocket deductible of $3,000 each. Can we claim this deductible as an expense? My husband helps me part of the day when school is in session.
A: You cannot claim this as a business expense unless you set up a Health Reimbursement Account.
Q: Which IRA (Roth or Traditional) is best to invest in?
A: How much your IRA will earn depends on where it is invested. A Roth IRA or a Traditional IRA will earn the same amount if they are invested in the same fund. I prefer a Roth IRA because you can avoid paying taxes on the interest it earns.
Q: Are the Stimulus checks non-taxable?
A: Yes, they are non-taxable.
Q: Is it okay to keep the Stimulus check for a later date or do we need to spend it on business items?
A: You can keep the Stimulus check for a later date. You don’t have to spend it.
Q: Is the Paycheck Protection Program taxable income?
A: No.
Q: I received a PPP check. When I pay myself with this money do I take out payroll taxes?
A: No.
Q: Is the 2021 PPP loan taxable after it’s been forgiven?
A: No.
Q: I had a parent who stopped paying their child care tuition. I won a court judgment against this parent. They agreed to pay me in monthly installments until the debt was paid in full. Do I have to report as income the money I received under this judgment? Do I have to give the parent a tax document indicating that she paid in full?
A: Yes, you must report this income when you receive it. You don’t have to give the parent a receipt indicating that she paid in full.
Q: Our preschool is co-owned. One of us lives in the home and the other one comes to the home to work. How do we divide up the taxes in this situation?
A: This is a complicated question. My short answer is that the person who lives in the home should hire the other person as her employee. If anyone wants more information about this, call me at 651-280-5991.
Q: How can the Pandemic Unemployment Assistance (PUA) be used to fund my SIMPLE IRA? PUA is considered personal income and is listed on Form 1040 Schedule 1 while the SIMPLE IRA is limited to net earnings based on my Schedule C.
A: Money you receive as unemployment benefits are taxed as personal income. However, you can use this money to fund your SIMPLE IRA.
Q: If I was closed due to COVID and got unemployment, does that count as income?
A: Yes.
Q: How can I switch from an S Corporation to an LLC?
A: Contact your state secretary of state’s office to fill out a form that dissolves your S Corporation and another form to create an LLC.
Q: Is it more beneficial if I’m self-employed or an LLC?
A: Stay self-employed.
Q: How will deducting all my business expenses affect my Social Security benefits when I retire?
A: By claiming all your business expenses, this will reduce your profit and reduce the amount of Social Security taxes you will pay. Your Social Security benefits are based on the highest 35 years of earnings over your life. Showing a lower profit over many years will reduce the amount you receive in Social Security benefits. In my opinion, you should not try to raise your profit by not claiming some business expenses. Instead, make contributions to your own IRA to help offset lower Social Security benefits.
Q: We have a private preschool and several of our kid do not pay us. Can we deduct this “scholarship” as a business expense or is it simply lost income?
A: It’s lost income, sorry.
Q: We do fund raisers to help buy toys and supplies used only by my preschool. Is this counted as income?
A: Yes.
Tom Copeland - www.tomcopelandblog.com
