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Civitas Strategies Answers to the Questions from Tax Webinar for Child Care Providers
The following questions were from the 02/15/2024 Tax Webnar for Child Care Proiders that was hosted by Low Income Investment Fund (LIIF) and presented by Civitas Strategies.
Grant
Q. How to handle grant money and related expenses?
Answer: With grants, the money is counted as revenue, even if it has not been used.
Expenses are treated normally. For example, a home based provider would likely need to use time- space calculations to determine the deductible portion of expenses such as appliances or fencing.
Q. Do we pay self-employment tax on grant money received?
Answer: If you are a sole proprietorship and you have additional profit from a grant, it would be taxed as self-employment income.
Q. If I received a grant, do I have to declare it?
Answer: Yes, in most cases.
Expenses/ Deductibles
Q. If I lease a car that I use exclusively for daycare, can I include the lease payments in my taxes as a deduction?
Answer: If it is 100% business use, then yes.
Q. If I share storage for myself and my work, would the 50% apply for deduction?
Answer: If it clearly and exclusively takes up 50% of the space, yes.
Q. Can I claim my uber rides for field trips, since I do not drive?
Answer: Yes.
Q. If I use my car for advertising, by placing magnet sign on the vehicle with the childcare business information, is it a deductible expense?
Answer: The magnetic sign would be deductible. Your vehicle would only be deductible as you have mileage directly associated with the business.
Q. Do repairs (e.g., driveway, roofs, exterior paint, etc.) qualify as deductibles at 100% for homes that are not lived in and only used to run the childcare from?
Answer: If the home is 100% business use for the child care business the costs would be 100% deductible.
Q. I take child development classes and every time I go I buy food, can I put it toward business expenses?
Answer: It depends on the specific circumstances of the training and the food.
Q. Are children's parties 100% deductible?
Answer: It depends on the specific circumstances, but likely, yes.
Q. Can maintenance expenses be added to taxes?
Answer: It depends on whether the maintenance expenses are directly related to the business.
Q. How do deductions work for minor renovation and repair grants?
Answer: Typically all items are deductible, though you may need to apply time-space calculations.
Q. Can expenses used to pay a garder be counted as a deductible?
Answer: For a home child care it would likely be deductible using time-space calculations.
Q. What are some examples of expenses, that are not ordinary and necessary, that may automatically trigger an audit?
Answer: The IRS methods for determining audits based on data are closely guarded and many of your expenses are provided categorically so they only find out the detail once they have audited you. I would suggest looking closely at your other expenses since those are itemized.
Q. Are new energy efficient window replacement expenses fully or is this a depreciation thing?
Answer: It depends on the location of the windows.
Time-Space Calculations
Q. If my spouse and I are working together, how are our hours calculated in terms of overall time-space- calculation?
Answer: California is a community property state. Accordingly, you can opt to have him co-own the business in which case you would file two Schedule Cs each for half the revenue and expenses.
Q. What if the living room has been converted over for students, and you only use it for that, but you walk through it to go in and out of the house?
Answer: This is very difficult. There isn’t clear guidance from the IRS on this but my feeling based on audits would be that it would not be seen as an exclusive space.
Q. When you measure your time-space percentage, for example, a 10 x 10 room, of which 5 x 5 of it is used for all and the other 5 x 5 is used for daycare file cabinets, should 5 x 5 be entered as exclusive use?
Answer: Yes, if it is clearly exclusive use.
Q. Can time-space calculations be a combination of exclusive and shared space?
Answer: Yes, that is correct.
Q. Are backyard and garage areas counted for time- space percentage?
Answer: The garage, yes if used for the business. The backyard does not count as space, but costs related to it (such as putting in a fence or lawn maintenance) may be eligible for deduction.
Q. I use a lot of paper plates and towels. If I spend $100 and 50% time-space, that means I spent $50 on paper plates and towels, but I have 14 kids that I supply for. What would you suggest?
Answer: I would suggest tracking and storing the ones for the children separately, so you can isolate that expense and deduct the full amount.
Q. How is my house payment considered in my taxes?
Answer: You can deduct it using your time-space factor if it is rent or for mortgage interest (not principal)
Food Program
Q. Should we pay tax for the money that is received from Beanstalk food program?
Answer: Likely, yes. Assuming it is revenue from the CACFP and not a different program you do need to report the revenue.
Q. If I use the Kidkare software, do I need to calculate anything?
Answer: We cannot speak to Kidkare’s functionality.
Q. Food program doesn't send us 1099. do we include it on filling our tax
Answer: Yes.
Meals
Q. What line should children's meals be listed under, if not business meals?
Answer: Line 22 of the Schedule C: Supplies is where all food costs for the children are included
Q. If my own child is one of my students at home, can I deduct her meals?
Answer: No.
Mileage
Q. What is the millage rate during the 2023?
Answer: 65.5 cents per mile.
Q. For the mileage record, is it necessary to write down the miles of each stop in a journey of several stops in a single trip?
Answer: You want to include the miles that are related to business, so if all the miles in a three stop trip are related to business you can just record the total miles (not each part of the trip).
Wages/Income
Q When some families earn less than $200 dollars a year, do I have to report it on taxes?
Answer: I think the question is, do you have to report revenue from a family if it is $200 or less. If a family pays you, regardless of how much, it needs to be reported on your income.
We received Employee Retention Tax credit. Should we enter/report it as income?
Answer: Yes.
Q. We received a stiped from union and CDSS, are these all considered income and for schedule C or separate?
Answer: We would need to know the specifics, but likely it would be income on your Schedule C.
Q. Can I pay myself and what percentage?
Answer: This can depend on your circumstances. You can learn more here: https://www.childcare.texas.gov/paying-yourself
Q. If my husband is helping me is it more beneficial if I pay my him for his assistance?
Answer: Based on the information provided we can’t determine if that is a better option over him being an employee.
Employees
Q Is it required by law to provide workers' compensation to employees, even if they are a family member?
Answer: It depends on the specific circumstances and the relationship of the employee to the owner.
Cost of Goods
Q. You mentioned that we should not have cost-of-- goods sold, but I noticed that my tax prep added an amount. I don't sell items I just provide services. What should I do?
Answer: You should talk to your preparer this year when they show you a draft of your taxes and ask what is included and why. It is likely not worth the investment to amend last year’s taxes, but you will want to monitor it going forward.
Filing Status
Q. What are some advantages of S and C corp filings, as compared to individual filings?
Answer: This is a much deeper topic. You can get started learning more here: https://www.childcare.texas.gov/incorporation
Q. What is the benefit of filing taxes separately or together as a married couple?
Answer: This is highly dependent upon your personal circumstances, but generally, filing jointly is more advantageous.
Tax Forms
Q. I have a question, I have a person who helps me with my childcare, she asks me for the W-9 form to report on her taxes, but I cannot give that form. Is there a form you suggest that I can give?
Answer: It is unclear as to why you would need to provide a W-9. It sounds like she should be a W-2 employee.
Q. What is the difference between a W-9 and a W-2?
Answer: A W-9 is for newly hired independent contractors and gives the business the tax information you need to file a wage statement at the end of the tax year.
A W-2 is a wage and tax statement for employees that the business fills out and files with the government at the end of each tax year.
Q. Do we complete a Schedule E form, for grant funds, so the funds are not counted as normal business income?
Answer: With grants, the funds are counted as revenue. Expenses are treated normally.
Q. What tax forms should give parents at the end of the year?
Answer: You can provide a W-10. You also just provide your EIN directly.
Q. I am filing jointly with my husband, do I still need to file a Schedule C for my home daycare business?
Answer: Yes.
Q. Are we able to deduct from 1099 G for infrastructure fund?
Answer: 1099Gs can be issued for a number of different payments without understanding the origin of the funds, we cannot be sure about what would be deductible against that revenue.
Other
Q. I am a S corporation, what is the best way to pay less taxes to IRS?
Answer: This is a much deeper topic. You can get started learning more here: https://www.childcare.texas.gov/incorporation