Is your tax preparer familiar with child care tax rules?
The fact of the matter is that there are not nearly enough tax professionals out there with a good understanding of child care taxes. If you are a child care provider looking for help at tax time, this can be very frustrating.
This article provides suggestions for providers who are searching for a tax preparer. It also points to some questions you can ask your current or prospective preparer to judge their familiarity with family child care tax rules.
California day care providers interested in working with me can visit the Family Child Care Taxes homepage to find out if I am currently taking new income tax clients.
Tax preparer credentials:
Tax professionals come with a variety of credentials. You can choose between an Enrolled Agent, a CPA, or other tax professional. To obtain their credential, Enrolled Agents must pass a rigorous test administered by the Internal Revenue Service covering all areas of taxation. CPAs are tested at the state level. Their test focuses partly on taxes and partly on other areas of accounting.
Having credentials does not guarantee experience with family child care tax issues, but there is one big advantage to working with an Enrolled Agent or a CPA. These professionals can represent you if you are audited or receive a notice from the Internal Revenue Service or other tax agency. With your written permission, they can deal directly with the IRS on your behalf. Other tax professionals can't do this.
Here is some information from the California Franchise Tax Board to help you choose carefully.
Tax preparer directories:
Here are a few directories to help with your search for a tax preparer:
IRS Directory of Federal Tax Return Preparers
National Association of Tax Professionals
National Association of Enrolled Agents
California Society of Enrolled Agents
Questions to ask:
No matter what type of tax professional you work with, the most important thing is familiarity with family child care tax rules.
Though it may feel awkward, be prepared to ask a number of questions. That is the only way to get an idea how much experience and expertise the person has with the unique family child care tax rules. Tom Copeland writes about these special rules and suggests some questions in his Questions to Ask Your Tax Professional blog post. Here are some other questions you can ask.
You should also ask whether the tax preparer provides depreciation schedules with every completed tax return (the copy for your records). I suggest that you avoid any preparers who don't.
Here's a very important question: Will you be signing my tax return as the preparer? Do not work with anyone who refuses to sign your tax return. That means they are not a real professional.
Interview several tax professionals and do it during the off season, if you can. It's important to find someone who communicates and answers your questions. If it is tax time already, you probably won't get an extensive interview before you have to make up your mind. Decide on someone and hope for the best. Remember that you can switch preparers if you are unhappy with the person you choose. Too many people stick with their tax preparer even when they are dissatisfied. (Sometimes very dissatisfied!) If your gut tells you it is time to change, then do so.
It will be your job to know enough to work with the person you choose and educate them on day care tax issues, if necessary. Too many family child care tax returns contain blatant errors that the provider should have detected. Check over your completed tax return carefully. Ask questions if something doesn't look right to you. You sign the tax return and you are responsible for its contents. Most importantly, you pay the price if the IRS doesn't like what they see!
Use Publications from Tom Copeland to educate yourself. His Tax Companion is specifically geared to helping you work with a tax professional and feel confident that they are handling your tax issues correctly.
Be sure to attend any tax workshops offered in your area and do it every year, if they are offered. Learning about taxes takes time and repetition. Check out Tom Copeland's live and online training schedule. If you are lucky, you will have the opportunity to attend a local tax workshop with Tom. He travels extensively and also makes himself available to answer questions from providers, tax professionals and others. If you ever want to double check something your tax preparer is doing and can't find the answer yourself, you can reach Tom at 651-280-5991 or firstname.lastname@example.org.
Lastly, to emphasize something I said earlier: If you are dissatisfied with your tax preparer for any reason, find a new one. Personality mismatch, non-responsive, it doesn't matter why. Listen to your intuition if you feel that it is time to make a change, especially if you suspect that your tax return contains errors.
Good luck! It really is important to find a good person to work with, someone who will calculate the lowest, correct tax and help you avoid penalties and stay out of trouble with the IRS. You'll have peace of mind today and down the road.
Last updated 12 February 2015