Daycare Tax Tips


Is Your Tax Preparer Familiar with Child Care Tax Rules?

Some suggested questions from Tom Copeland

I had the opportunity to attend a 4C's of Alameda County child care tax workshop with Tom Copeland this past week.

It remains quite difficult for day care providers to find tax professionals who really understand their tax issues. Even very well trained and experienced CPAs, Enrolled Agents, and other tax preparers are quite unfamiliar with the particular rules that affect you. This can mean lost opportunities for deductions or mistakes that can really hurt you.

Here are some questions that Tom suggests you ask to gauge whether a tax preparer will handle your tax return correctly:

Here's a question that I would add:

CORRECT ANSWERS:

  • ALWAYS depreciate your home. (There will be some depreciation recapture tax to pay when you sell your home, but that is the case whether you deduct the depreciation now or not.)
  • It is a GOOD IDEA to do a household inventory and depreciate the home furnishings you owned at the start of your business. This will reduce your taxes over several years.
  • Yes, COUNT ALL HOURS WORKED IN THE HOME, whether during regular child care hours or not. This will boost your time/space percentage and increase your home deductions.
  • There is NO LIMIT to the work hours you can count, other than the fact that there are only 24 hours in a day. Providers who keep children overnight can count the nighttime hours.
  • Yes, an exclusive-use room CAN BE CLAIMED in addition to your regular-use rooms. Having an exclusive business-use room will raise your time/space percentage quite a bit.
  • Your tax preparer SHOULD PRINT depreciation schedules with your copy of the tax return. This means both regular tax schedules and alternative minimum tax schedules. Without this information there is no way to decipher your depreciation deduction. You don't know what actual items of real estate, equipment, and furnishings you may be depreciating. This could be a problem if you get audited. It WILL BE a (potentially huge) problem should you decide (or be required) to work with a new tax professional. Preparers should not withhold this information.


Last updated 19 May 2011

Posted on 2010-02-27 07:20:52

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