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Daycare and Taxes All things related to Taxes and running a Daycare post here. Topics of tax exemptions, forms, filings, tax write offs, IRS etc.

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Old 03-02-2013, 11:38 AM
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Default How Do You Go From $65000 Profit to $15000?????

I am signed out so that my bff doesn't see this.
So if we make $65000, how do we get it down to $15000 on our taxes???

How do you claim you pay each of your children $5000???? When you didn't!!!!

How do people do this?? Just frustrating!

Idk. Anyone else get it down so low??? I really feel like I do everything LEGAL that I can and I still end up at a higher amount.

Last edited by Michael; 03-02-2013 at 01:33 PM.
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Old 03-02-2013, 01:23 PM
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There is no way...
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Old 03-02-2013, 01:39 PM
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Mine are like that every year. by the time you take the deductions for food, mortgage interest, hazard insurance, liability insurance, water/sewer/garbage, cell phone, heating/electricity, property taxes, toys, supplies, ect. they each child can earn the maximum without having to pay them because you are having them help you in your daycare (cleaning, putting things away, mowing the yard, ect) and you ARE paying them with room and board and things that they want/need throughout the year.

It's all legal and legit. If you do your taxes on your own using a software package it's not going to ask you all the right questions to get the best outcome. Make sure you use an accountant who knows their stuff and is willing to argue their decisions and back up the deductions in the event of an audit.
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Old 03-02-2013, 02:09 PM
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Quote:
Originally Posted by heyhun77 View Post
Mine are like that every year. by the time you take the deductions for food, mortgage interest, hazard insurance, liability insurance, water/sewer/garbage, cell phone, heating/electricity, property taxes, toys, supplies, ect. they each child can earn the maximum without having to pay them because you are having them help you in your daycare (cleaning, putting things away, mowing the yard, ect) and you ARE paying them with room and board and things that they want/need throughout the year.

It's all legal and legit. If you do your taxes on your own using a software package it's not going to ask you all the right questions to get the best outcome. Make sure you use an accountant who knows their stuff and is willing to argue their decisions and back up the deductions in the event of an audit.
Hmm. I guess I need to figure out how to "pay" my teenager with housing/cell phone/etc. this upcoming year since he does help out and I'm deducting absolutely nothing (though, if he DID absolutely nothing then he would NOT have a cell phone or the various entertaining things he gets to participate in).
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Old 03-02-2013, 04:39 PM
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It is my understanding you need a paper trail of paying your child.

If they then buy their school lunches or clothing That seems reasonable. But I would think asking a child to pay room and board might not make it through an audit.
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Old 03-02-2013, 06:27 PM
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It will totally fly through an audit. I make a list each year at tax time the duties that each boy do to work in the daycare and their age so if I were audited I can show their duties. The paper trail is the W2 you send in each year matching up with what you deducted on your taxes. They don't have to file their own tax return if you keep it under the limit. I know Tom Copeland has written about this but I can't find the article right now.
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Old 03-02-2013, 09:19 PM
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I am pretty sure in a training I went to he gave that he told us we should pay them with a check or they need a bank account to show they deposited. it.

I do not remember him saying we could just say they worked for room and board.
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Old 03-02-2013, 09:32 PM
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I was wrong the article says you do not have to pay with a check you can pay in cash.But to me it still means you have to actually pay them.

Hiring Family Members



Hiring Family Members

Many providers hire their own family members and take advantage of IRS rules that allow them to reduce their taxes. If you hire your own children under age 18, your children will not have to pay any Social Security taxes. Wages paid to your children to do work for your business are 100% deductible. If you hire your own children who are over age 18 or if you hire your own spouse, wages paid to them are subject to Social Security taxes and federal income taxes. So there is no significant tax benefit to hiring children over age 18 or your spouse unless you set up a medical reimbursement plan and claim medical expenses as a business deduction.

Providers who do hire their own family members should be careful about keeping the proper records. The IRS is initially suspicious of these arrangements because they assume that providers are trying to claim a business deduction without meeting the requirements of an employer hiring an employee. Providers who are sloppy about their record keeping can get into trouble if they can't show that their child did the work for which they were paid.

Here are the records you should keep if you hire your own children or spouse:
•Get a taxpayer identification number from the IRS (Form SS-4 can be filled out online at www.irs.gov).
•Prepare a job description that details what are the responsibilities of the job: play with the children, clean up before and after the children, prepare meals for the children, clean toys, record keeping, etc. Do not include more personal activities such as shopping, mowing the lawn, running family errands, etc.
•Prepare a written agreement between you and your family member that describes the employment arrangement: days and hours of work, pay, etc. Both parties should sign this agreement.
•Keep a daily record of when the work was done. If the work done is the same every day, simply record the days and hours worked: Monday 9am - 10am, Tuesday 9am - 10am, Wednesday 9am - 10am, etc.
•Write out a receipt for each payment, get the family member to sign it, and keep a copy: "Payment of $25 cash for 5 hours of work January 3 - 7, 2007." It is not necessary to pay by check; you can pay with cash. Make this payment out of a separate business account if you have one.
•Payments to family members must be reasonable. If you have a $15,000 business profit, it is unreasonable to pay your own children $6,000 in wages. Payment of $20 per hour to your 15 year old is also unreasonable. The test of what is reasonable is probably how much you would be willing to pay someone who is not a family member. If you also give your child an allowance, keep a record of when you gave this allowance and how much it was.



This handout was produced by Resources for Child Caring (www.resourcesforchildcare.org). For additional family child care business publications, contact Resources for Child Caring’s publishing division, Redleaf Press, at 800-423-8309 or visit www.redleafpress.org
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Old 03-03-2013, 04:11 PM
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Default Hiring own children

Quote:
Originally Posted by heyhun77 View Post
Mine are like that every year. by the time you take the deductions for food, mortgage interest, hazard insurance, liability insurance, water/sewer/garbage, cell phone, heating/electricity, property taxes, toys, supplies, ect. they each child can earn the maximum without having to pay them because you are having them help you in your daycare (cleaning, putting things away, mowing the yard, ect) and you ARE paying them with room and board and things that they want/need throughout the year.

It's all legal and legit. If you do your taxes on your own using a software package it's not going to ask you all the right questions to get the best outcome. Make sure you use an accountant who knows their stuff and is willing to argue their decisions and back up the deductions in the event of an audit.
In order to deduct payments made to your own children you need to follow a series of rules, outlined in my article posted in this thread. You cannot pay your own children to do household chores that would be done anyway (mowing the lawn, taking out garbage, etc.). The work has to be directly related to the business. I'm not sure what you mean by paying your children room and board, but you couldn't deduct any amounts you pay them for their room and board.
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Old 03-03-2013, 04:13 PM
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Default Profit

Quote:
Originally Posted by Unregistered View Post
I am signed out so that my bff doesn't see this.
So if we make $65000, how do we get it down to $15000 on our taxes???

How do you claim you pay each of your children $5000???? When you didn't!!!!

How do people do this?? Just frustrating!

Idk. Anyone else get it down so low??? I really feel like I do everything LEGAL that I can and I still end up at a higher amount.
Your focus should not be on the amount of taxes you owe. Instead, look at how much you have left over after paying your taxes. You do not want to spend money to reduce your taxes, because for every $100 you spend, your taxes will go down no more than $50. Spend $100 to get $50 back on taxes is not something you should do. If you hired your child and paid her $1,000 to do work for your business, you taxes may go down by as much as $500, not $1,000.
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Old 03-04-2013, 09:11 AM
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Tom, You once told me that I should just claim the amout paid to my child under activities expense? Is that correct? If that amoutn goes up higher, would that cause an audit?

Do I need to fill out any special tax forms for my paying my child? She is 13 and over this last year, I have paid her $2500 to work for me. I gave her SOME cash, but the rest was things that were purchased for her. She works for me to pay for her dance classes mainly.
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Old 03-04-2013, 12:28 PM
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Default Expenses

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Originally Posted by Unregistered View Post
Tom, You once told me that I should just claim the amout paid to my child under activities expense? Is that correct? If that amoutn goes up higher, would that cause an audit?

Do I need to fill out any special tax forms for my paying my child? She is 13 and over this last year, I have paid her $2500 to work for me. I gave her SOME cash, but the rest was things that were purchased for her. She works for me to pay for her dance classes mainly.
If you are paying your child and following all the tax rules, then putting this expense under "Activities" is fine. The reason I say this is to not draw attention to this because the IRS is suspicious of providers hiring their own children and you may be more likely to be audited if you put this expense under "wages." I don't think paying your 13 year old $2,500 in a year is likely to cause an audit, assuming you made a profit of at least $5,000. You can compensate her pay paying for her dance classes. Be sure to keep accurate records of when she did the work, that the work was related to your business, and that the amount you paid her comes out to be no more than federal minimum wage ($7.25 per hour). I use the federal minimum wage as a guideline for your because of the age of your child. Older children could earn more per hour.
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Old 03-05-2013, 06:20 AM
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Yes, I will still end up with about $35000 after expenses.

I was just concerned with putting this expense for paying my child in with expenses because that puts my expenses at over $5000 for the year. Does that seem ok for that category???

Anyone want to share what they spend each year on activities??
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Old 03-05-2013, 07:40 AM
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Default Expenses

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Yes, I will still end up with about $35000 after expenses.

I was just concerned with putting this expense for paying my child in with expenses because that puts my expenses at over $5000 for the year. Does that seem ok for that category???

Anyone want to share what they spend each year on activities??
If you have $5,000 under activities and this amount is 2-3 times more than any other expense category, I'd move some of it out into another category.
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Old 03-05-2013, 12:19 PM
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Tom, can I ask a question about paying a family member? My husband is my unofficial helper- he's home 2 days of the week and is helping me care for the kids, as well as doing some of the cleaning (dishes, vaccum, ect). I am license exempt and do not have a large daycare (1-3 kids a day). Can you explain if claiming him as a paid employee would be beneficial, and why? Thanks so much!!!
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Old 03-10-2013, 12:43 PM
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Yes please explain how it's beneficial to pay your husband a few hours an week to do stuff for the daycare


And I have tons of deductions. Mortgage interest, daycare insurance, taxes, home repairs, food, toys, percentage of utility bills. I still have a profit but mine is probably similar to your BFF. I keep all receipts and I spend a lot on daycare.

Couldn't you just ask her to tell you her expenses?
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Old 03-10-2013, 01:42 PM
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The major one that gets me is that she has 2 teenagers of her own and she deducts the max she can for each of them as employees. They don't have to claim taxes on it, they are14 and 15. She doesn't actually pay them any money, she says it is all done in clothing, cell phones, dance classes etc. So over $10000 a year is payments(suposedly) to her kids...
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Old 03-10-2013, 04:32 PM
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Who cares what you BFF is or isn't claiming? Seems to me that it really isn't any of anyone else's business.

If she is claiiming things illegally then she will eventually get caught and pay the price. Even if she never does get caught, she is the one who has to live with the fact that she lies on her taxes.

I would simply make sure that my taxes are done properly and as honestly as possible.

I know lots of people who falsify things on their taxes. Some due to ignorance and others due to simply not caring and being willing to risk it.

In the end, everyone is only responisble for themselves.
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Old 03-11-2013, 09:58 AM
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Originally Posted by Mama2Bella View Post
Tom, can I ask a question about paying a family member? My husband is my unofficial helper- he's home 2 days of the week and is helping me care for the kids, as well as doing some of the cleaning (dishes, vaccum, ect). I am license exempt and do not have a large daycare (1-3 kids a day). Can you explain if claiming him as a paid employee would be beneficial, and why? Thanks so much!!!
In general, it doesn't make sense to pay your husband to help you with your business. If you do, you must withhold Social Security/Medicare taxes and he must report the amount as income and pay income taxes. In addition, in some states you may be required to purchase workers compensation insurance on him. There is also a lot of forms to file for all of this.

The only situation where hiring your husband has a tax benefit, is if you set up a Section 105 medical reimbursement plan. When you do this you can deduct, as a business expense, medical expenses for your family that are not otherwise covered by insurance. This includes medical insurance premiums, drugs, eyeglasses, copays, etc. You need to have a professional set up this plan. I've written about this in my article "When Hiring Your Husband Makes Sense" :http://www.tomcopelandblog.com/2011/...kes-sense.html
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