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Mastering record keeping 2011
 

Mastering record keeping 2011

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Record Keeping Power point for NAFCC 2011 annual conference

Record Keeping Power point for NAFCC 2011 annual conference

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    Mastering record keeping 2011 Mastering record keeping 2011 Presentation Transcript

    • Mastering Record Keeping and Taxes Tom Copeland For the National Association for Family Child Care, July 20, 2011 Copyright 2010 Tom Copeland and Resources for Child Caring
    • Instructor
      • Tom Copeland, JD
      • Trainer on family child care business issues since 1981
      • Author of 9 books on the business of family child care
      • Contact me with questions: 651-280-5991; [email_address]
      • www.tomcopelandblog.com
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Welcome!
      • This class will enable you to better assist providers to
        • Identify the benefits of good record keeping
        • Learn how to properly report business income
        • Identify common business deductions
        • Claim food expenses
        • Deduct car expenses
        • Properly calculate the Time-Space Percentage
        • Hire employees
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Disclaimer
      • “ I am not rendering legal, tax, or other professional advice.”
      • “ If you require this type of assistance, please consult a professional to represent you.”
      Copyright 2010 Tom Copeland and Resources for Child Caring
      • General Record Keeping Tips
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Do You Love Record Keeping?
      • Maybe not, but …
      • Keeping good records means big rewards!
      • The better your records, the lower your taxes
      • For every $10 of expenses you claim, you’ll save $3-$4 in taxes
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Three-Year Rules
      • Keep all business records for at least 3 years
        • Some states require that you keep records longer
      • The IRS can audit back 3 years
      • You can amend your tax return back 3 years
      Copyright 2010 Tom Copeland and Resources for Child Caring
      • Tracking Income
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Taxable Income
      • Report money received from:
        • Parents
        • Food Program
        • Subsidy Program
        • Grants
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Two Key Rules
      • Identify all deposits into personal/business bank accounts
      • Get a signed receipt from each parent at end of year
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Adequate Records
      • Receipt
      • Cancelled Check
      • Credit/Debit Card Statement
      • Written Record (created by provider)
      • Photograph
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Mark Receipts
      • Mark items on each receipt
        • 100% Business
        • Shared
      • Put into folders with other similar expenses
        • Toys, supplies, utilities, activity expenses, etc.
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Supply Expenses
      • 100% Business Shared
      • $800 + $1,000 = $1,800 x 40% = $720
      • X 40%
      • $400
      • Correct deduction for supplies $800 + $400 = $1,200
      Copyright 2010 Tom Copeland and Resources for Child Caring
      • Car and Food Expenses
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Car Expenses
      • Claim car trips that are “primarily” for business purposes
      • Keep “adequate” records of business trips
        • Receipts, mileage log, cancelled checks, credit/debit cards, written records, calendar notations, photographs
      • Don’t need to keep odometer readings
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Standard Mileage Method
      • 2011 standard mileage rate
        • $.51 cents per business mile 1/1/11 – 6/30/11
        • $.555 cents per business mile 7/1/11 – 12/31/11
      • Can also deduct parking, tolls, business portion of loan interest and personal property tax on car
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Actual Expenses Method
      • 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
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Food Program
      • Join the Food Program!
        • You are always financially better off
      • Reimbursements from the Food Program are taxable income
        • Exception: reimbursements for your own children
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Standard Meal Allowance
      • All providers eligible to use this rule
      • Can claim up to 1 breakfast, 1 lunch, 1 supper, and 3 snacks per day/per child
      • Never count meals for own children
      • Meals (not reimbursed by the Food Program) do not have to be nutritious
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Standard Meal Rules
      • 2011 rate
        • $1.19 breakfast; $2.22 lunch/supper; $0.66 snack
        • All providers use these rates for entire year
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • More Standard Meal Rules
      • Keep daily record of all meals and snacks served
      • Use monthly Food Program claim form
      • Track non-reimbursed meals daily on a calendar
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Actual Food Cost Method
      • Estimate your actual food costs
      • Many different methods to use
      • Must keep all food receipts - business and personal
      Copyright 2010 Tom Copeland and Resources for Child Caring
      • Claiming Deductions
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Three-Step Process
      • 1) Is it deductible?
      • 2) How much is deductible?
      • 3) When can I deduct it?
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Is It Deductible?
      • It is if it’s “ordinary and necessary” for the business
      • Parents expect providers to offer a home environment for children to learn
      • Anything to clean, maintain, and create a home environment is “ordinary and necessary”
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Common Deductions
      • Play Room – toys, rugs, 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.
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • How Much Is Deductible?
      • Exclusively personal use
        • No deduction
      • Exclusively business use
        • 100% business deduction
      • Partly business and personal use
        • Use Time-Space Percentage
        • Could use Actual Business Use Percent
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Shared Business/Personal Expenses
      • You have hundreds of items used for both business and personal purposes:
        • Property tax, mortgage interest, utilities, house insurance, house repairs, home improvements, house depreciation, rent, furniture, appliances, fence, supplies, toys, television, kitchen utensils, tools, etc.
      • Use Time-Space Percentage to determine business portion
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • It Can Make A Difference
      • Property tax $5,000
      • Mortgage interest $4,000
      • Utilities/repairs $5,000
      • House Insurance $3,000
      • House depreciation $2,000
      • Toys, supplies, etc. $1,000
      • Total $20,000
      • $20,000 x 35% T/S% = $7,000 business deduction
      • $20,000 x 40% T/S% = $8,000 business deduction
      • 5% higher T/S% = $1,000 extra deduction
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Time-Space Percentage
      • Time Percent
        • How many hours are you using your home for your business?
      • Space Percent
        • How many square feet are you using your home for business on a regular basis?
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Business Hours
      • Count two types of hours:
        • When children are present in your home
          • From the moment first child arrives until last child leaves
        • When children are not present in your home and you are conducting business activities
          • Cleaning, activity and meal preparation, parent interviews/calls, record keeping, Internet, etc.
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Track Hours
      • Hours children are present in home
        • Use calendar or Food Program claim form for attendance records
      • Hours children not present in home
        • Track 2 months of cleaning, activity preparation, etc. and use average for rest of year
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Track Additional Time At Pickup
      • Parent pick-up time is 5:30 pm
      • One parent is regularly late and doesn’t leave provider’s home until 6:00 pm
      • Provider should track when parent walks out, not signs out
      • Half hour a day, 5 days a week = 1.5% of the year!
        • This is worth tracking: $20,000 x 1.5% = $300
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Business Space
      • Count rooms that are regularly used for your business
      • “ Regular use” means at least 2-3 times a week
        • Bedroom used for naps, living room, dining room, kitchen, playroom, bathrooms, etc.
      • Children do not need to be in room for it to be “regular use”
        • Laundry room, storage room, master bedroom, etc.
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • More on Business Space
      • Can count rooms even if licensing says off limits for children
        • Laundry room in basement used by provider
      • Must count basement and garage as part of home
        • Basement: tools, garbage can, bikes, yard equipment, etc.
        • Garage: storage, furnace area, workbench, etc.
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Time-Space Percentage
      • Hours worked divided by total hours in a year = Time Percent
      • Rooms regularly used for business divided by total rooms = Space Percent
      • Time Percent X Space Percent = Time-Space Percentage
      • Recalculate your percentage each year
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Exclusive Use Room Rule
      • 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 2010 Tom Copeland and Resources for Child Caring
    • When Can I Deduct It?
      • Basic Rule of Depreciation -
      • Item costs less than $100
        • Deduct in 1 year
      • Item costs more than $100
        • Depreciate over a number of years
      • $100 is a rough rule of thumb
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Definition of Depreciation
      • Depreciation means deducting an item over a number of years
        • $50 toy (100% business) = $50 deduction in current year
        • $50 toy (shared expense) x 40% T/S% = $20 deduction in current year
        • $1,000 computer (100% business) depreciated over 5 years = $200 deduction in current year ($1,000 x 20% first year depreciation)
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Exceptions to Depreciation
        • May deduct in one year rather than depreciating -
          • Repairs
          • Section 179 rule
          • Item wears out before end of first year
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Categories of Depreciation
      • Office Equipment (5 years)
        • Computer, printer, fax, copier, scanner
      • Personal Property (7 years)
        • Furniture, appliances, play equipment, carpet, vinyl flooring
      • Land Improvement (15 years)
        • Fence, driveway, playground equipment
      • Home Improvement (39 years)
        • Remodeling, new furnace, deck, wood/tile floor
      • Home (39 years)
      • Car (5 years) (only if using actual business expenses method)
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Home Improvements vs. Repairs
      • Home improvement is attached to the home and increases its value
        • New roof, new deck, remodel basement room
      • Repair simply maintains the value of the home
        • Replace damaged shingles on roof, staining the deck, paint basement room
        • $5,000 house painting = repair (1 year)
      • Repair (1 years) vs. improvement (39 years)!
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Section 179 Rule
      • This rule allows providers to deduct items in one year, rather than depreciating them
      • Item must be used more than 50% in business
      • Rule applies to:
        • Office equipment, personal property, car
        • Not: land improvements, home improvements, home
      • Item must be purchased in current year
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • House Depreciation
      • All providers should depreciate their home, no matter what!
      • $100,000 purchase price of home x 40% T/S% = $40,000/39 years = $1,025 deduction/year
      • Home depreciation is a significant tax benefit
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Business Inventory
      • Conduct inventory of all household items
      • Tax benefit can be substantial
        • $10,000 worth of household items x 40% T/S% = $4,000 business property/7 years = $570 deduction/year
      • New providers
        • Start depreciating when business begins
      • Experienced providers
        • Use Form 3115 to recapture depreciation not previously claimed
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Workers Are Employees
      • A person who is hired to help care for children is an employee (with rare exceptions)
        • No matter how little the person is paid
        • No matter how few hours the person works
        • Many providers fail to treat their workers as employees when they should
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Federal Employee Tax Forms
      • EIN – tax identification number
      • Form I-9 – eligibility to work in U.S.
      • W-4 – employee tax withholding
      • Form 941 or 944 – payment of payroll taxes
      • Form 940 – unemployment tax
      • W-2 – wages notification to employee
      • W-3 – wages notification to Social Security
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Federal Minimum Wage
      • $7.25 per hour
      • Federal minimum wage only applies if provider hires more than one employee (not counting immediate family members)
      • If state minimum wage is higher than federal minimum wage, must pay state minimum wage
      • State may require state minimum wage for first employee hired
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Workers’ Compensation Insurance
      • Workers’ Compensation insurance covers employees who are injured on the job
        • State rules determine when providers must purchase this insurance
        • Significant penalties for not having this insurance when required
        • Contact state workers’ compensation office for information
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Hiring Family Members
      • No Form I-9, no federal unemployment tax
      • Spouse/own child age 18 or above
        • Must withhold and pay Social Security tax
        • Spouse/own child must report income
      • Spouse/own child below age 18
        • No Social Security tax owed
        • Child earning less than $5,450 does not report income
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Rules For Hiring Family Members
      • Prepare detailed job description
      • Work must be directly related to the business – no chores
      • Record hours of work, payment
      • Amount paid must be reasonable
      • Significant tax benefit to hire own child below age 18
      • No requirement to pay spouse or own children
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • IRS Audits
      • Don’t worry about being audited
      • Your chances of being audited: less than 2%
      • There is little you can do to reduce your chances of being audited
        • Exception: claiming losses each year
      • Claim all expenses you are entitled to and keep proper records – then don’t worry
      • Get help if audited
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Business Resources
      • www.nafcc.org (Business Center)
        • Hundreds of free articles, e-newsletter, IRS Audit Center
        • Family Child Care Record Keeping Guide
        • Family Child Care Tax Workbook and Organizer
        • Family Child Care Tax Companion
      • www.minutemenu.com
        • Minute Menu Kids Pro Record Keeping Software program
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Pretest/Posttest Answers
      • True
      • False
      • True
      • False
      • False
      • False
      • False
      • True
      • False
      • False
      Copyright 2010 Tom Copeland and Resources for Child Caring
    • Contact Tom
      • Tom Copeland
      • 800-359-3817 (ex. 321)
      • [email_address]
      • www.tomcopelandblog.com
      • Facebook: http://tinyurl.com/6jo35ep
      Copyright 2010 Tom Copeland and Resources for Child Caring