August 4, 2010

Dear Friend,

Mid-year is a good time to make sure you are caught up on your 2010 record-keeping. It can be hard to catch up when you get behind. Some providers get so far behind, that they start fiing tax returns late or skip filing them altogether. A good record-keeping routine is important.

Don't forget to track your extra hours, meaning time spent on business tasks done in your home outside of regular child care hours. This one thing can increase your business deductions by a lot. Track this time carefully for at least two months every year.

Using specialized software can make record-keeping much easier. You enter purchases from your receipts and the software provides the expense category totals at the end of the year.

I recently wrote up a step-by-step envelope record-keeping method for providers who prefer a paper record-keeping method. Using this method, you process your receipts weekly or monthly and end up with the expense category totals that you need at tax time. If you try this method, I would love to hear your feedback.

Sincerely,

P.S. Here's a Special Offer:

Purchase a copy of Tom Copeland's Family Child Care Record-Keeping Guide. Just $10!

Save $8, plus no sales tax and no shipping charge to any U.S. address.

All child care providers should have a copy of this book. Use it as a reference when you have a record-keeping question. Discover some business expenses you are overlooking.

This great deal is possible because the 8th edition just came out and I still have some copies of the 7th edition on hand. According to Tom, the changes in the new edition are minor, except for incorporating new comments from the IRS Audit Technique Guide that came out in 2009. The total number of pages in the book didn't change.

Check out all of Tom Copeland's family child care business publications and webinar training opportunities.

Meal Rates Also Apply to Restaurant Meals

Not many child care providers (nor many tax preparers) seem to know that when using meal rates to calculate your food deduction for income tax purposes, your choice will affect restaurant meals, as well as meals served at home.

Count the heads of daycare children when taking them out to eat if you are using the standard meal allowance rates to calculate your food deduction for meals served at home. In that case, you must also use the meal rates for day care children's meals eaten at restaurants. This has nothing to do with food program meal counts or reimbursements. This rule only affects your income tax return food deduction.

If you want to deduct the actual cost of kids' restaurant meals, then you must deduct the actual cost of groceries for at-home meals, too. Your choice can change from year to year, but for any given year, you must use either the meal rate method or the actual grocery cost method for both meals served at home and those eaten in restaurants.

2010 Federal HIRE Act
Incentives for hiring unemployed workers

Here's a reminder: Day care workers are NOT independent contractors. Except in very limited situations, they must be treated as employees.

Another tip: If you are a California provider, you must pay your workers at least twice per month. Some providers are paying their employees only once per month, but this is not allowed under California labor law. (But it might be if you are hiring accredited teachers and paying twice the minimum wage.)

Two new Federal credits can reduce your payroll taxes:

The recently passed Federal Hiring Incentives to Restore Employment (HIRE) Act lets you skip your 6.2% contribution to social security for previously unemployed employees who begin employment after February 3, 2010 and before January 1, 2011. Your portion of social security taxes is forgiven for wages paid from March 19, 2010 through December 31, 2010.

Under the HIRE Act, you can also qualify for a new hire retention credit of up to $1,000, provided your employee remains on the job for 52 consecutive weeks.

How Much Will an Employee Cost You?
Get a handle on wages + taxes + fees + insurance

How much will it cost to hire a child care assistant? You can pretty easily estimate the amount of wages, but what about the payroll taxes, insurance, etc.? This article will give you some idea of the total cost of having an employee.

High Expenses & Low Profit is Good at Tax Time
But it's not good when you need a loan

Just like everyone else right now, child care providers are having trouble qualifying for home mortgage loans. Getting a loan can be harder for self-employed persons, especially if business profit is low.

Here's an example of a provider who feels her income was higher than the amount shown on the front her tax return.

I often suggest that clients ask loan officers to look at the income on line 29 of the Schedule C. That is your business profit before considering home expenses. I think that amount is more representative of your business profitability.

I'm not sure whether lenders ever go for this argument, but it's worth a try.