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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 03-10-2011, 08:01 PM
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Post Should I Become An LLC or Not??

I am at my wits end with conflicting advice from 2 tax people, 2 insurance people and an attorney. I have been doing home daycare for a year now so this is something I probably should have done before...better late than never.
I was told recently by a good friend who also has a home daycare that I should become an LLC because it would seperate my personal property from any liability, basically I couldn't get sued for my house and cars if god forbid something happened and I was in a legal situation.
What is true?
I've heard yes and no and I've heard get more insurance, but how much?? I was told 2 different things about how my taxes would need to be done, that a: nothing changes but my tax id and b: I have to file a seperate return and don't get to deduct nearly as much as I can know..(really don't like that option!!)
Can anyone advise me on what you know and also what you do. I just found this forum tonight searching and will definately be back because it looks like there is so much great information and great people here. Thanks for your help!!

Last edited by crmommy; 03-10-2011 at 08:27 PM. Reason: change title
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Old 03-10-2011, 08:15 PM
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Welcome to the form
I would address this question to tom. He is the tax guru for daycare aka the god father. Lol
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Old 03-10-2011, 08:24 PM
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I know, I actually have one of his books in front of me. Obviously not the book that helps me with this though...I'll adjust my title I guess for him to see??Thanks!!
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Old 03-11-2011, 12:03 PM
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Default Llc?

There are pros and cons for setting up an LLC:
Pros: you may get some extra liability protection for your personal assets
Cons: It will cost you some money to set one up and there are annual fees (not too much). You will have to keep your business and personal records separate (more paperwork).

If you set up a single person LLC you fill out exactly the same tax forms as a sole proprietor (Schedule C, Form 8829, etc.). Your taxes will be the same. So, you won't lose any tax deductions. If you set up a corporate LLC or a partnership LLC then there are different tax forms to fill out and you will lose the ability to deduct your house expenses.

Liability - You won't get full liability protection for your personal assets. For example, let's say your time-space % is 40%. That means 40% of your assets are business and these are not protected if you are an LLC. In other words, if someone sues you only 60% of your home is protected, the person suing you can come after 40% of your home which is a business asset and not protected by an LLC.

I recommend getting a lot of business liability insurance to protect yourself - $1 million per occurrence and $3 million aggregate. I don't think it's worth considering an LLC unless you are comfortable with more record keeping and have a lot of personal assets you are trying to protect.

For details on all of this see my Family Child Care Legal and Insurance Guide (www.redleafpress.org).
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Old 03-12-2011, 01:55 AM
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Thank you so very much for explaining it in "english" and breaking it down "barney style" I swear I had more brain cells before I had kids and started doing daycare and should have understood it, but I was getting conflicting information. Thank you again!! Your help was very much appreciated and will make my decision much easier!
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Old 06-15-2018, 08:04 AM
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Question Liability as a sole proprietor

Question for Tom when you say liability under a single owner LLC can the sue and take your business income from what we make from our daycare?
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Old 06-15-2018, 12:33 PM
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Question for Tom when you say liability under a single owner LLC can the sue and take your business income from what we make from our daycare?
No matter how you incorporate your business, if you are sued they can take your business assets. This includes all money from your business and your business property (equipment, toys, as well as the business portion of your home and furniture and appliances). It's your personal assets that are presumably protected from a lawsuit.
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Old 10-11-2018, 07:45 AM
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Originally Posted by TomCopeland View Post
There are pros and cons for setting up an LLC:
Pros: you may get some extra liability protection for your personal assets
Cons: It will cost you some money to set one up and there are annual fees (not too much). You will have to keep your business and personal records separate (more paperwork).

If you set up a single person LLC you fill out exactly the same tax forms as a sole proprietor (Schedule C, Form 8829, etc.). Your taxes will be the same. So, you won't lose any tax deductions. If you set up a corporate LLC or a partnership LLC then there are different tax forms to fill out and you will lose the ability to deduct your house expenses.

Liability - You won't get full liability protection for your personal assets. For example, let's say your time-space % is 40%. That means 40% of your assets are business and these are not protected if you are an LLC. In other words, if someone sues you only 60% of your home is protected, the person suing you can come after 40% of your home which is a business asset and not protected by an LLC.

I recommend getting a lot of business liability insurance to protect yourself - $1 million per occurrence and $3 million aggregate. I don't think it's worth considering an LLC unless you are comfortable with more record keeping and have a lot of personal assets you are trying to protect.

For details on all of this see my Family Child Care Legal and Insurance Guide (www.redleafpress.org).
Hi, I am planning to open a child care facility (not in my home). I have asked my accountant for advice on whether I should incorporate or be an LLC but have not received an answer.

My concern is based on having to pay income taxes on my personal returns as opposed to having the company pay for them. My understanding is that an LLC can elect to be a corporation. How would that work? I would prefer to receive a regular pay check, like any employee with taxes withdrawn and have the company responsible for the company's income taxes. What do you suggest?

Any advice/direction would be most appreciated!
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Old 10-11-2018, 12:15 PM
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Originally Posted by eperez View Post
Hi, I am planning to open a child care facility (not in my home). I have asked my accountant for advice on whether I should incorporate or be an LLC but have not received an answer.

My concern is based on having to pay income taxes on my personal returns as opposed to having the company pay for them. My understanding is that an LLC can elect to be a corporation. How would that work? I would prefer to receive a regular pay check, like any employee with taxes withdrawn and have the company responsible for the company's income taxes. What do you suggest?

Any advice/direction would be most appreciated!
Yes, you can set up an LLC as an S or C corporation. It only makes sense to do this if you are making a lot of money. That's because if you are the employee of the corporation the corporation will have to pay federal and state unemployment taxes and it will need to purchase workers compensation insurance for you. These are additional costs that wouldn't occur if you were a single person LLC or self employed. So, you need to ask your accountant to show you what the tax consequences would be of this decision. I say, remain self employed.
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Old 10-12-2018, 08:06 AM
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Yes, you can set up an LLC as an S or C corporation. It only makes sense to do this if you are making a lot of money. That's because if you are the employee of the corporation the corporation will have to pay federal and state unemployment taxes and it will need to purchase workers compensation insurance for you. These are additional costs that wouldn't occur if you were a single person LLC or self employed. So, you need to ask your accountant to show you what the tax consequences would be of this decision. I say, remain self employed.
Thank you for the clarification!
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Old 12-31-2019, 07:05 PM
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Oh , I thought for a daycare I have to open a LLC, so what is your advice in my case, my accountant toll me if I open a LLC I can chose how to pay taxes , I can choose pay taxes as an individual, or ‘S’ O ‘C’, my home daycare will be small with 6 children, do I open a LLC or no, I am planing to do this on January 15, as far as I know from YouTube , please correct me if I am wrong, they say as an individual self employment I can’t do many deduction like the use of my home , car, etc; but if I create a LLC and do my taxes as S’ I can do deductions, is this true , what will be better in my case, thank you
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Old 01-01-2020, 10:27 AM
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Oh , I thought for a daycare I have to open a LLC, so what is your advice in my case, my accountant toll me if I open a LLC I can chose how to pay taxes , I can choose pay taxes as an individual, or S O C, my home daycare will be small with 6 children, do I open a LLC or no, I am planing to do this on January 15, as far as I know from YouTube , please correct me if I am wrong, they say as an individual self employment I cant do many deduction like the use of my home , car, etc; but if I create a LLC and do my taxes as S I can do deductions, is this true , what will be better in my case, thank you
Sounds like your accountant does not understand daycare taxes and you might want to find a new one. I recommend that you check out www.tomcopelandblog.com and ask him these questions directly. You can message him through here also. He is a well known author and lawyer for daycare taxes.
You can also find his classes on YouTube.
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Old 01-02-2020, 10:20 AM
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Originally Posted by Julia2 View Post
Oh , I thought for a daycare I have to open a LLC, so what is your advice in my case, my accountant toll me if I open a LLC I can chose how to pay taxes , I can choose pay taxes as an individual, or S O C, my home daycare will be small with 6 children, do I open a LLC or no, I am planing to do this on January 15, as far as I know from YouTube , please correct me if I am wrong, they say as an individual self employment I cant do many deduction like the use of my home , car, etc; but if I create a LLC and do my taxes as S I can do deductions, is this true , what will be better in my case, thank you
You are not required to become an LLC! 99% of providers are self employed. If you set up a single person LLC, you will deduct all the same deductions as being self employed. If you set up any other type of LLC, you will lose the ability to depreciate your home! Becoming an LLC means you will have to keep your business and personal records separate. That is very difficult to do. I'm happy to discuss this if you call me at 651-280-5991.
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Old 01-08-2020, 06:20 AM
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Thank you for answer me, so what is the benefit to became a Single person LLC?, the only reason that I was thinking to became a LLC is for protection in case someone have a problem and the insurance in not enough to cover, is there any LLC home daycare that can tell me the benefits or disadvantage ,I was planning to became a single or individual LLC, as a individual LLC can I do my taxes as a self employed, were I can deduct the depreciation of my house, etc?, thank you
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Old 01-08-2020, 07:04 AM
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How much is home daycare insure 1 million and 4 million to avoid becoming LLC?, were I can get it?, If I have a LLC an a parent suit me, does he suit just my LLC or also my others assets?, as a individual LLC do I have to get another number for my taxes ?, thank you
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Old 01-08-2020, 08:57 AM
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Thank you for answer me, so what is the benefit to became a Single person LLC?, the only reason that I was thinking to became a LLC is for protection in case someone have a problem and the insurance in not enough to cover, is there any LLC home daycare that can tell me the benefits or disadvantage ,I was planning to became a single or individual LLC, as a individual LLC can I do my taxes as a self employed, were I can deduct the depreciation of my house, etc?, thank you
The advantage of a single person LLC is that your tax forms are the same as a sole proprietor and that means you can deduct expenses in the same way. If you set up any other type of LLC the forms are different, more difficult to fill out, a tax preparer will charge more to fill them out, and you will lose your house depreciation deduction.
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Old 01-08-2020, 09:00 AM
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How much is home daycare insure 1 million and 4 million to avoid becoming LLC?, were I can get it?, If I have a LLC an a parent suit me, does he suit just my LLC or also my others assets?, as a individual LLC do I have to get another number for my taxes ?, thank you
You can get $1million occurrence and $3 million aggregate insurance from most companies. That's the max. If a parent sues you, you contact your business liability agent and they take care of the rest. They will hire an attorney to respond to the parent's lawsuit. They will either settle and pay out something or decide that the lawsuit if baseless and not pay. All your assets, business and personal, are protected under your policy.
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