Chapter I.

Good Record Keeping Makes

Good Financial Cents!

01/05/2016

Good Record Keeping Makes Good Financial Cents! Do you love record keeping? Probably not. Most family child care providers do not. But, keeping good records will pay off with a big reward for you. How so? The better your records, the lower your taxes. For every $10 of expenses that you claim on your tax return, you will save about $3-$4 in taxes. For every $100 of expenses you will save $30-$40 in taxes. That’s a lot! Therefore, saving receipts is your number one record-keeping job. Here are some more examples of how you will save money by keeping good records:

1) For every two hours a week you work in your home you will be able to deduct a little more than 1% more of your house expenses (property tax, mortgage interest, house insurance, utilities, house repairs and house depreciation). One percent more of thousands of dollars of these expenses is significant. Keeping track of the hours you work will save you a lot of money.

2) If you serve a day care child one snack a day, you will be able to claim a business deduction of $190 on your taxes each year. If you serve the child two snacks a day, you can deduct $380. If you have four day care children and serve two snacks a day, that’s equal to a $1,520 tax deduction! This translates into a $456 - $608 tax refund for you. Keep track of all snacks you serve to children, including those not reimbursed by the Food Program.

3) If you drive 20 miles to a training workshop, field trip, or other business destination,

you can deduct $10.80 (20 miles x $.54 standard mileage rate for 2016) on your tax return. If you drive 20 miles each week, that is equal to a $561 business deduction. Keep track of all the business miles you drive.

Most providers don’t realize how valuable their records will be at tax time. As a result, they pay too much in taxes! So, if you want to save money, keep good records!

01/05/2016

Why Don’t Family Child Care Providers Keep Good Records? “It’s too much work and I don’t have the time to keep records.” It’s true that keeping good records is work. And it’s probably true that you don’t have a lot of extra time to do one more thing. However, it doesn’t make sense to work long hours caring for children and pay more in taxes than you should because you didn’t spend a little time keeping good records. Try to set aside an hour each week to record keeping. Putting off record keeping only makes it more difficult to do later. “I don’t know where to start.” Start here. These are the three most important things to do that will save you the most money on your taxes.

1) Keep receipts for all expenses associated with your home 2) Keep track of all the meals and snacks you serve the children in your care 3) Keep at least two months of records of the number of hours you worked in your

home when daycare children were not present “I don’t know how to organize my records.” First: Keep track of all sources of your income: parent payments and fees, Food Program reimbursements, subsidy payments, grants Second: Save all your receipts, business and personal Third: Mark each item on the receipt as either “100% business” or “Shared” Fourth: Put your receipts into folders identified by expense categories You can open up a business checkbook, but it’s not necessary You can use record keeping systems such as: Minute Menu Kids Pro software, Redleaf Calendar-Keeper, Child Care Tool Kit or Family Child Care Business Kit. “I don’t need to understand record keeping because my tax preparer does it.” Even if you don’t understand all of the details of record keeping you can still save the proper records so someone else can prepare your taxes. Saving receipts, tracking meal counts and recording the hours you work are the primary record keeping tasks that you are in the best position to do.

01/05/2016

It’s not necessary for you to do your own taxes, but you are ultimately responsible for what is put on your tax forms. If you let a professional do your tax return, that person can make mistakes. You can reduce the chances that mistakes will be made if you understand the basics of record keeping. Have the person doing your taxes put in writing where the numbers on your tax forms came from. If you don’t understand, ask questions until you do. It’s your money. “It’s too overwhelming and I’m bad at numbers.” Yes, it’s easy to become overwhelmed when first learning about record keeping. But, you can understand the basics of record keeping with a little time and effort. You don’t need to be good at math to accomplish the primary tasks of record keeping. Saving receipts, tracking meals counts and recording hours don’t involve math. Let someone else determine how much of the receipts you can deduct, multiply the meals counts by the standard meal allowance rate, and add up all your hours for the year. “It won’t make any significant difference on my taxes.” Yes, it will! The only reason to keep good records is because it will make a very significant difference on your taxes! Let’s say your house related expenses (property tax, mortgage interest, utilities, house insurance, house repairs and house depreciation) total $10,000 each year. You can deduct a portion of these expenses on your tax return. The amount you can deduct depends on the number of hours you work and the amount of space of your home you use for your business. Every two hours a week you work will increase by a little more than 1% the amount of these expenses you can deduct. So, if you worked 60 hours a week, that represents about 36% or $3,600 of business deductions. This means a tax savings of between $1,080 and $1,440 to you each year. What’s Your Excuse? These are some of the many reasons why family child care providers don’t keep good records. You may have other reasons. For the most part, however, these are excuses for not wanting to spend the little time that it will take to have the records you need to save you a lot of money on your taxes. Nobody can force you to keep good records. But, only you will benefit from doing so.

01/05/2016

The Real Benefits of Keeping Good Records The three most important record keeping tasks for family child care providers are:

1) Save all receipts associated with your home 2) Track all the meals and snacks you serve to the children in your care 3) Track all the hours you work in your home

How much money will Jody Provider (who is single), save by doing these tasks?

Before Doing After Doing Tasks Tasks

Income Parent fees (6 kids) $40,000 $40,000 Food Program $6,000 $6,000 Total Income $46,000 $46,000 Expenses Household items $6,000 x 32% = $1,920 $7,000 x 38% = $2,660 Food $6,000 $7,139 Toys/Curriculum $2,000 x 32% = $640 $2,000 x 38% = $760 House expenses $15,000 x 32% = $4,800 $15,000 x 38% = $5,700 Office/Activities, etc. $5,000 x 32% = $1,600 $5,000 x 38% = $1,900 Other expenses $11,040 $11,040 Total expenses $26,000 $29,199 Profit (Income-Expenses) $20,000 $16,801 Social Security tax $2,826 $2,374 Federal income tax $1,381 $935 Wisconsin income tax $884 $710 Total tax $5,091 $4,019 Jody reduced her taxes by $1,072! What made the difference? Household items: Jody saved an additional $1,000 of receipts for household items such as: cleaning supplies, snowplow service, laundry detergent, paper towels, etc. Because her Time-Space % was increased she can also claim a higher percentage of all her household items. Tax Savings $108

01/05/2016

Food: Jody claimed an afternoon snack for six children every day: 6 children x $.74 standard meal allowance rate x 5 days a week x 52 weeks = $1,154 extra food deduction. Tax Savings $385 Hours: Jody tracked an additional 10 hours of work each week after children were gone doing cleaning, activity preparation, meal preparation, record keeping, etc. This raised her Time-Space Percentage by six percent. Therefore, it increased her deductions for household items, toys/curriculum, house expenses (property tax, mortgage interest, house insurance, utilities, house repairs, and house depreciation) and office/activities. Tax Savings $583

01/05/2016

What Can Be Done About Illegal Family Child Care Providers?

Wisconsin’s family child care licensing rules exist to help protect the health and safety of the children in care. Persons who care for four or more children under age seven in their own home must be licensed. Persons who care for up to three unrelated children in their own home must be certified. No child should be cared for by a person who is operating illegally. It’s not safe for children and it’s unfair competition for those family child care providers who follow the rules. What Can You Do? If you know of a child caregiver operating illegally, here are some steps you can take:

1) Work with your local/state family child care association, family child care licensors and Child Care Resource and Referral agencies to educate caregivers about the benefits of being certified/licensed. Some caregivers may not know the rules.

2) Report suspected illegal caregivers to your local family child care licensor. Ask what they will do about it. Usually they will send the person a letter asking them to apply for a license/certification or stop providing care.

3) If your licensor does not act, or the illegal caregiver does not stop providing care,

contact your local police department and ask them to investigate. The caregiver could be fined for their actions.

4) Call the Internal Revenue Service (IRS) criminal investigation informant hotline at

800-829-0433. Or fill out IRS Form 3949-A Information Referral (http://www.irs.gov/pub/irs-pdf/f3949a.pdf) to report the caregiver. Or, write a letter to IRS, Fresno, California 93888. It’s quite likely that illegal caregivers are not reporting all of the income to the IRS. The IRS is more likely to investigate if they hear from more than one person. You do not need to know the person’s Social Security number or have proof that the person is not reporting all their income. Your name will be held in confidence by the IRS.

01/05/2016

What are the Tax Benefits of Receiving a YoungStar Micro-Grant?

The Wisconsin YoungStar Micro-Grant Program is designed to provide funds to support family child care providers to improve their quality. Family child care providers who quality for this program are eligible to receive $250 (if certified) or $500 (if licensed). Providers will use this money to implement their Quality Improvement Plan (QIP). In some cases the Micro-Grant Program will purchase materials on behalf of the provider. In other cases the provider will pay for items and be reimbursed later. What are the tax consequences of receiving a YoungStar Micro-Grant? Providers must report as income the amount of the Micro-Grant they receive as income. This includes materials purchased by the Micro-Grant Program and given to the provider. The value of the grants received under this program may be deducted on a provider’s tax return following the regular rules of business deductions. In most cases there will be little, if any, impact on a provider’s tax return. If providers receive materials through the Micro-Grant Program they should save records showing the value of the materials they received. If the shipping invoice does not show the value of the materials, they should ask for a copy of an invoice from the Micro-Grant Program. If providers pay for expenses directly (trainings, etc.) they should make a copy of the receipt for these items before sending the original receipt to the Micro-Grant Program. Examples

I. A provider receives a $250 grant and is given $250 worth of children’s materials. She uses these children’s materials only during child care hours. She would report:

Income: $250 Expense: $250 No tax owed.

01/05/2016

II. A provider receives a $250 grant and is sent $250 worth of children’s materials. Her own children use these materials after day care hours and her Time-Space Percentage is 35%. She would report:

Income $250 Expense: $250 x 35% = $87.50 $250 income - $87.50 business expense = $162.50 taxable income

III. A provider spends $600 towards the NAFCC Accreditation process, and receives a

$500 Micro-Grant. Income: $500 Expense: $600 Reduces taxable income by $100

IV. A provider receives a $500 TEACH scholarship and pays an additional $2,000 of her

own money for her education. Income: $500 Expense: $2,500 (This assumes the provider is not taking classes to get her first post-second degree.) Reduces taxable income by $2,000

Note: Amounts paid for classes to get a first post-second degree are not deductible. Amounts paid for classes to get a second post-secondary degree are deductible. Amounts paid for classes with no intention of getting a post-secondary degree are deductible. This would include getting a CDA, NAFCC Accreditation, or any class sponsored by Child Care Resource and Referral.

V. A provider installs some new playground equipment for $3,000 and receives a $500 grant. If she uses it more than half the time for her business:

Income: $500 Expense: $3,000 x 80% business use = $2,400 tax deduction If she uses it less than half the time for her business and her Time-Space % is 40% Income: $500 Expense: $3,000 x 40% = $1,200 depreciated over 7 years

Is it worthwhile to receive a Micro-Grant? Yes! Some family child care providers are reluctant to apply for a grant when they realize they must report any grant they receive as taxable income. But, they forget that they can deduct items purchased with the grant money as a business deduction. In many cases they can deduct 100% of the grant and will therefore pay no more in taxes. If you do owe a little more in taxes after receiving a grant, the amount is usually very small.

01/05/2016

In the second example above the provider will owe taxes on $162.50. That means paying between about $49 and $65 more in taxes (Social Security/Medicare/federal and state income taxes). That’s a small price to pay for getting a grant worth $250!

01/05/2016

Start-Up Costs As a new family child care provider you will have to spend some money to get your business off the ground. These costs can vary a lot, depending on your personal circumstances. In most cases, they will be relatively low. You can reduce some of these expenses by buying used toys and equipment at yard sales or from providers going out of business. You may already have many of these items. Cost Building Building inspection – cost to bring home up to building code ________________ Remodeling, egress window ________________ Smoke/carbon monoxide detectors on each level of the home ________________ Fire extinguisher ________________ First aid kit ________________ Safety latches, outlet covers, and locks ________________ Outdoor fence ________________ Private well water testing ________________ Personal Physical exam and TB test ________________ Supplies Kitchen equipment and utensils ________________ Children’s activity supplies ________________ Cleaning supplies ________________ Children’s equipment Table space and seating for each child ________________ Cot or sleeping bag for each child Crib or playpen for each child under one year of age who naps ________________ Indoor play equipment ________________ Outdoor play equipment ________________ Age-appropriate toys ________________ Training Requirements Introduction to the Child Care Profession non-credit course ________________ Fundamentals of Family Child Care non-credit course ________________ Within six months: CPR class + 10 hours of infant/toddler training ________________ Shaken baby syndrome prevention workshop ________________

01/05/2016

15 hours of continuing education ________________ Insurance Business liability insurance ________________ Homeowners insurance ________________ Business property insurance ________________ Car insurance ________________ Car safety seats ________________ Other Child care license fee ________________ Advertising ________ ________ Office expenses ________________ Security system ________________ Family child care association dues ________________