Daycare Business Taxes
Now that you are in the daycare business, there are a number of decisions that have to be made in terms of keeping track of the business end of things. It's great fun caring for the kids and doing crafts, the not-so-fun part can definitely be the business end of things. And, if you're doing everything yourself, you may find the challenge a bit overwhelming
First, there is a real bonus to operating a daycare out of your personal because there are special rules that apply only to daycare businesses - no others. Can the tax department really be that generous? In fact, you are allowed to count all the areas in your home used regularly for your business and not just those used exclusively for childcare when determining the space in the home that you can deduct. (Think kitchen and bathrooms). There is a specific calculation for this called the Time-Space Calculation. In this calculation a floor plan is used to determine the square footage of your rooms and what percentage of space is used for personal, business and shared space. Your accountant can help you with this one.
Direct business expenses are those expenses you wouldn't have if you didn't have a daycare in your home. Things like advertising, Liability insurance, toys, arts and crafts supplies and extra groceries. Indirect expenses are those you share as an individual with your business. Rent, mortgage interest, taxes on the properly, utilities, house insurance, repairs and maintenance and other household costs fall into this category. These expenses go through the time-space calculations and the direct expenses go through the business tax return.
The last part of this phase is to decide what assets you have are capital assets - things you own that will last longer than a year. Your house, car, refrigerator, microwave, and furniture are all assets. These assets have to be depreciated, expensed over a period of time and not expensed in the current year. You have to determine what assets are shared or used directly by the business. Again, your accountant is the person to help you with all of this.
Startup CostsIn the US you are allowed to expense the first $5,000 of expenses in your first year of operation and any expenses over that amount are capitalized and amortized (divided equally) over 60 months. Things like legal fees, supplies, toys, daycare furniture, license fees, and education classes. Capital costs would be things like building a fence or adding a room.
Type of Business
There are several routes to go when choosing what type of business you'd like to be.
· The basic and easiest business to form is a sole proprietor. You are fully liable for all the debts and obligations of the business, period. Most facilities are sole proprietorships.
· A Single Member Limited Liability Company is an entity that will limit you from the full liability of the sole proprietorship.
· Partnerships are two or more people organized to operate a business. There is no limited liability and all partners are held responsible for the action of each partner.
· A corporation is considered an individual entity and, as such, needs to file its own income tax returns.
Family childcare providers owe it to themselves to learn as much as possible about record-keeping and taxes, as well as other important business issues such as contracts, policies, insurance, and legal issues. The best person to look out for your interests is you.
A good accountant is an important asset when it comes to sorting through the jungle of taxes. There are also great software programs available to help make record-keeping and tax time easier.