HELPFUL HINTS IN ESTABLISHING YOUR CHILD CARE BUSINESS
Single-parent families or households where both parents work need quality daycare services, and providing these services can be a profitable venture. When you start making income, the IRS will be there to take its share of what you earn. Some careful planning can lessen the tax bite and allow you to keep more of your profits.
Form of Business Ownership
The first decision to make about your daycare center is the form of business ownership. A sole proprietorship is the simplest form of ownership; all income from the business is the personal income of the owner and taxed on his tax return. In a partnership, more than one person will be owning the business. Each splits the profits as her own income depending on her share of ownership in the company.
A corporation is its own entity, with the income taxed as corporate income. If you form an S-corporation, the daycare income passes through to your personal tax return to be taxed at your personal rate. You receive protection from liability with a corporation. An LLC provides some protection from lawsuits, but may have fewer tax benefits than a corporation.
You must establish a detailed system for tracking revenues and expenses for your daycare business. This can be as simple as a paper ledger, or you may use a computer program for greater detail. You must also have a way to report at the end of the year what each parent paid for daycare expenses. Enter all business expenses, no matter how small, into your recordkeeping system.
Determine how you will be keeping attendance for the children in your care. Attendance logs are important; they may also be necessary in case of an IRS audit to prove the times that the children were under care, and to validate the revenues claimed by the business.
You may run your daycare in your home or in a separate space. Expenses incurred with a separate space, such as rent and utilities, are 100 percent deductible. If you use your home, you can deduct a percentage of your expenses corresponding to the percentage of business use of your home. Home daycare centers do not need to meet an exclusive-use test; the percentage of business use is determined by the time you spend providing daycare in the home. Make sure that your attendance sheets include entries for time in and out, and have a place for the parent to sign, verifying these times.
Daycares may provide meals to the children in their care. You may deduct the actual expenses of the meals provided, or you can deduct the federally allowed per diem rate for meals allowed in your area. The per diem rate may be easier if you operate a home daycare and mix personal food supplies with daycare supplies. Be sure to document all meals and snacks served to the children.
Be certain that you are ready to withhold your employees’ taxes and remit these withholdings to the federal government on a timely basis. If you are not willing to do this, enlist the services of a payroll company or accountant to help you.
Taxpayer ID Number
The parents paying the childcare bills will want your taxpayer ID number at the end of the year in order to deduct the daycare expenses. If you do not want to circulate your Social Security number for everyone to have, potentially exposing you to identity theft, apply for a federal taxpayer ID number when you first begin your daycare business. Do this even if you do not have employees.
REMEMBER: Pat Michael and Child Care Tax Specialists is your best source for professional tax preparation services with more than 30 years experience and thousands of satisfied clients.
To read the article in its original format, http://smallbusiness.chron.com/daycare-tax-checklist-22664.html
About the Author : Craig Woodman began writing professionally in 2007. Woodman’s articles have been published in “Professional Distributor” magazine and in various online publications. He has written extensively on automotive issues, business, personal finance and recreational vehicles. Woodman is pursuing a Bachelor of Science in finance through online education.