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Daycare and Taxes>Reduced Fees/Audit
jojosmommy 11:57 AM 06-01-2012
I have a dcp who is having a hard time bidding jobs right now, he has money coming in but wants to limit his payments to care. He wants to limit hours at dc and I have agreed to entertain the idea of reducing his fees accordingly. I told him I would need a good way to manage it for tax time though first.

I remember Tom mentioning at a training that the IRS estimates how much you should be reporting at tax time based on cost per week X number of kids X number of weeks open each year.

So, If I reduced his fees, (and do not have an hourly rate for anyone) how do I handle this IF I was to get audited?

He typically pays $540/two weeks for care but I might let him pay $0 for two weeks and the kids would only come for a little bit each day while he bids on jobs or they may not come at all. I would like to still claim them on the FP on the days they are still attending but know that would raise a red flag for the IRS if I was claiming kids and not getting paid for them.

MyAngels 12:01 PM 06-01-2012
I'm just guessing here, but I think the IRS would only attempt to estimate payments if you didn't have adequate records to back up your income claims. I would think a signed contract stating the terms of your new agreement for the lower amount would suffice, with bank records and receipts to the parent to back it up.

I'm sure Tom will chime in with the correct answer, though .
TomCopeland 02:57 PM 06-01-2012
Whenever you change the rate that parents pay you, it's important to keep good records to show this. In other words, put the new rates in writing and get the parent to sign it. If you are giving some free care, put this in writing. As long as you document what you are doing, and get the parent to sign it, you will be fine if audited.
jojosmommy 12:53 PM 06-04-2012
I use mmk and handles all my invoices. I can temporarly lower the amount charged on invoicing and add a reason in the notes section. I would still have a copy of the invoiced amount as well as theamount reduced. Is that sufficuent?

Can i just put family experiencing financial difficulties as the reason in the notes section? I dont want to offend them. I dont save paper reciepts, everything is on the computer so I dont really have anything to sign per se.
TomCopeland 02:26 PM 06-04-2012
It's fine to add a very general note: Modification of amount due agreed to by provider and parent.
Tags:audit, reduced rates, tax records, tom copeland
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