Spend a Little Time, Save a Lot of Money: Maximize Your Tax Deductions Tom Copeland for YoungStar Wisconsin s Child Care Quality Rating and Improvement System Welcome! This presentation is designed to help you save time and money on your taxes Learn how to identify what is deductible Learn how much to deduct Learn when you can deduct Learn key record keeping tips to follow year round Copyright 2016 Tom Copeland 1 Copyright 2016 Tom Copeland 2 Instructor Tom Copeland Resources Licensed attorney, worked in family child care field for over 30 years No fee to answer your questions Phone: 651-280-5991 Email: tomcopeland@live.com Blog: www.tomcopelandblog.com Family Child Care Record Keeping Guide Family Child Care Tax Workbook and Organizer For providers who do their own taxes Family Child Care Tax Companion For providers who hire tax professionals www.redleafpress.org Copyright 2016 Tom Copeland 3 Copyright 2016 Tom Copeland 4 Disclaimer Poll #1 I am not rendering legal, tax, or other professional advice. If you require this type of assistance please consult a professional to represent you. How long have you been a family child care provider? Less than 2 years 3-10 years 11-20 years More than 20 years Copyright 2016 Tom Copeland 5 Copyright 2016 Tom Copeland 6 1
Good Records = $ General Record Keeping Tips For every $10 of expenses you claim, you ll save $3-$4 in taxes $100 business deduction = $30-$40 tax savings in your pocket You ll earn more per hour doing record keeping than you will earn per hour caring for children! See: Good Record Keeping Makes Good Financial Cents! Copyright 2016 Tom Copeland 7 Copyright 2016 Tom Copeland 8 General Record Keeping Tips Three/Four-Year Rules Keep daily attendance records Keep records of all income Keep receipts for all expenses Review records monthly Business checkbook (may be helpful) Keep all business records for at least 4 years Wisconsin can audit you back 4 years The IRS can audit you back 3 years You can amend your federal tax return back 3 years See What Records Should Family Child Care Providers Keep? Copyright 2016 Tom Copeland 9 Copyright 2016 Tom Copeland 10 Tracking Income Two Key Rules Report as income money received from: Parents Food Program Subsidy program Grants Identify the source of all of your business and personal deposits into family and business bank accounts Get a signed receipt from each parent at the end of year Copyright 2016 Tom Copeland 11 Copyright 2016 Tom Copeland 12 2
Employer Identification Number (EIN) Get an EIN to avoid identity theft www.irs.gov (Search for Online EIN) Call IRS at 800-829-4933 Tracking Expenses Copyright 2016 Tom Copeland 13 Copyright 2016 Tom Copeland 14 Adequate Records Mark Receipts Receipt Cancelled Check Credit/Debit Card Statement Written Record (created by provider) Photograph Mark items on each receipt 100% Business Shared Put receipts into folders with other similar expenses Copyright 2016 Tom Copeland 15 Copyright 2016 Tom Copeland 16 Three-Step Process Claiming Deductions Is it deductible? How much is deductible? When can I deduct it? Copyright 2016 Tom Copeland 17 Copyright 2016 Tom Copeland 18 3
Is it Deductible? House Deductions It is if it is ordinary and necessary for your business You are providing a home environment to help children learn Parents expect you to maintain your home as a home Anything that helps to clean, repair, or maintain your home as a home is ordinary and necessary Property tax Mortgage interest Rent Utilities House insurance House repairs House depreciation Copyright 2016 Tom Copeland 19 Copyright 2016 Tom Copeland 20 Common Deductions How Much is Deductible? Play Room - toys, rug, DVD player, furniture, books, etc. Outdoors - lawn mower, rake, fence, new house siding, etc. Living Room - curtains, chair, lamp, ceiling fan, piano, etc. Bathroom - towels, soap, toilet paper, rug, bathroom scale, etc. Garage/basement - tools, freezer, garbage can, bicycles, etc. Exclusively personal use No deduction Exclusively business use 100% business deduction Shared business and personal use Use Time-Space Percentage Copyright 2016 Tom Copeland 21 Copyright 2016 Tom Copeland 22 100% Personal Items Items used exclusively for personal use are not deductible as a business expense: Provider s clothing, jewelry, hobbies, motorcycles, bed not used by day care children, etc. An item is deductible based on how it is used: First television used by business children and family shared business expense Second television used only by family (in son s bedroom) 100% personal/not deductible Items used 100% for business purposes can be deducted 100% as a business expense: Baby wipes, swing set, children s furniture, play equipment, art and craft supplies, etc. Items used anything less than 100% for business purposes cannot be deducted as 100% business: Common mistake by providers: claim living room couch as 100% business Copyright 2016 Tom Copeland 23 Copyright 2016 Tom Copeland 24 4
Time-Space Percentage Time-Space Percentage Single most important number to calculate correctly It will be used to determine the business portion of many household items: Property tax, mortgage interest, utilities, house insurance, house repairs, home improvements, house depreciation, rent, furniture, appliances, fence, supplies, toys, television, etc. Copyright 2016 Tom Copeland 25 Copyright 2016 Tom Copeland 26 Time and Space Business Hours Time Percent How many hours are you using your home for your business? Space Percent How many square feet are you using in your home for business on a regular basis? Hours children are present in home From when first child arrives to when last child leaves Hours children not present in home Cleaning, activity preparation, meal preparation, parent interviews/calls, record keeping, Internet activity, etc. Track for 2 months each year Copyright 2016 Tom Copeland 27 Copyright 2016 Tom Copeland 28 Hours When Children Are Present in Home Track Additional Pick-Up Time 6:00 am 5:00pm = 11 hours List hours in contract, keep daily attendance records Do not need to track every minute Sign in/out sheet is not required by the IRS Parent pick-up time is 5:30 pm One parent is regularly late and does not leave provider s home until 6:00 pm Provider should track when parent walks out, not signs out An extra half hour/day, 5 days/week = 1.5% of the year! This is worth tracking: $20,000 x 1.5% = $300 Copyright 2016 Tom Copeland 29 Copyright 2016 Tom Copeland 30 5
Hours When Children are Not in Home Poll #2 Cleaning Meal preparation/planning Activity preparation Interviewing prospective parents Talking to parents on the phone Keeping business records Filling out Food Program paperwork Spending time on the Internet for business See Track All the Hours You Work in Your Home How many hours in a week do you think you do business activities in your home when children are not present? 1-5 hours 6-10 hours 11-15 hours More than 15 hours Copyright 2016 Tom Copeland 31 Copyright 2016 Tom Copeland 32 Time-Percent Rules Keeping Proper Record of Time Can not count hours away from home Trainings, shopping, trips to library, etc. Can not count time twice Provider cleaning while business children sleeping Provider need not do the work to count the time Provider s spouse or own child cleans on weekends Tracking hours that children are in attendance is relatively straight forward Tracking hours that home is in business use when children are not present is harder: Keep two months of careful, daily records Note what time work was done on a calendar Use average for rest of year Tracking hours will make a significant impact on a provider s taxes! Copyright 2016 Tom Copeland 33 Copyright 2016 Tom Copeland 34 Business Space Exclusive Use Room Rule Count all rooms that are regularly used for business Regular use = 2-3 times per week Can count rooms even if children are not present Laundry room, office, storage room, garage, basement IRS Form 8829 Expenses for Business Use of Your Home Allows providers to claim higher Time-Space Percentage for room used 100% for business Room must never be used for personal purposes! Own children using room once a year would disqualify Examples: playroom, storage room, crib room Copyright 2016 Tom Copeland 35 Copyright 2016 Tom Copeland 36 6
When Can I Deduct It? Categories of Depreciation Costs less than $2,500 Deduct in one year Costs more than $2,500 Depreciate (claim the deduction over a number of years) Office Equipment Personal Property Land Improvements Home Improvements House Vehicle Copyright 2016 Tom Copeland 37 Copyright 2016 Tom Copeland 38 New Definition of Repair! Making Sense of New Depreciation Rules Deduct house repairs in 1 year, regardless of the cost Must depreciate home improvements over 39 years New IRS rule says repairs can now include: Replacement of roof shingles or a few windows or doors New wood/tile floor Remodeling of kitchen/bathroom - improvement Most items no longer need to be depreciated (less than $2,500) Ask tax preparer about new definition of repairs Small home improvements (less than $10,000) may be able to be deducted in one year Copyright 2016 Tom Copeland 39 Copyright 2016 Tom Copeland 40 Car Expenses Special Expenses Claim car trips that are primarily for business purposes Keep adequate records of business trips Receipts, mileage log, cancelled checks, debit/credit cards, written records, calendar notations, photographs Do not need to keep odometer readings Copyright 2016 Tom Copeland 41 Copyright 2016 Tom Copeland 42 7
Standard Mileage Method Actual Expenses Method Standard mileage rate 2016 - $.54 cents per business mile Can also deduct parking, business portion of loan interest and vehicle property tax Claim business portion of: Gas, oil, repairs, car insurance, parking, tolls, depreciation on the car, car loan interest, etc. Business portion = Business miles Total miles 2,000/10,000 = 20% Copyright 2016 Tom Copeland 43 Copyright 2016 Tom Copeland 44 Food Program Standard Meal Allowance Join the Food Program! You are always financially better off See The Tax Consequences of Food Program Participation Reimbursements from the Food Program are taxable income Exception: reimbursements for your own children Do not need to save food receipts! At end of year, add up all meals and snacks you served and multiply by annual standard meal allowance rate 2016 rate $1.32 breakfast; $2.48 lunch/supper; $0.74 snack Copyright 2016 Tom Copeland 45 Copyright 2016 Tom Copeland 46 Standard Meal Rules Actual Food Cost Method All providers eligible to use this rule Can claim up to 1 breakfast, 1 lunch, 1 supper, and 3 snacks per day/per child Can never count meals for own children Meals do not have to be nutritious Keep daily record of all meals and snacks served See Track All the Meals and Snacks You Serve Children in Your Care Estimate your actual food costs Many different methods to use Must keep all food receipts - business and personal Copyright 2016 Tom Copeland 47 Copyright 2016 Tom Copeland 48 8
Summary Contact Tom for Help Follow these 3 key rules Save receipts for all house expenses Keep daily records of all meals and snacks served Track all the hours you work in home Particularly when children are not present Call: 651-280-5991 Email: tomcopeland@live.com Blog: www.tomcopelandblog.com Facebook: www.facebook.com/tomcopelandblog Good Luck! Copyright 2016 Tom Copeland 49 Copyright 2016 Tom Copeland 50 9