The Ultimate Guide On How To Prepare For Tax Season With Your Home Daycare
The Ultimate Guide On How To Prepare For Tax Season With Your Home Daycare - There are many home-based entrepreneurs who run their own businesses from their homes. If you're planning to run a daycare from your home, there are some additional tax deductions that you can take advantage of.
To make the most out of your tax return, it's important to plan for tax season. This guide will help you optimize any deductions so you can maximize your year-end refund and head into the new year with a clean financial slate!
How To Prepare For Tax Season With Your Home Daycare
When you run your own home daycare, taxes are the last thing on your mind. But since this is a business, you are accountable to federal and state tax agencies. Be sure to keep records of all your receipts and expenses. This will ensure that you receive every deduction you are entitled to.
Tips Pro
Keep records all year to prepare for tax season. Know what you can deduct, understand home office deductions and learn about food program reimbursements. Make interim tax payments and consider hiring a professional to help you with your taxes.
Keep Good Records Year Round
Caring for small children, as well as your own family, can be incredibly stressful. However, it's important to maintain good business records throughout the year so that you can meet tax and legal requirements.
Also Read: Tax Tips for Small Employers
In early April, tax time comes around and many business owners have to scramble to find all their receipts and bank records. Avoid this by keeping your business documents sorted and your spreadsheets updated. The records you may need to keep include:
- Receipts for expenses
- Attendance records showing the days and hours that a child was in your care
- Housing and utility billsMeal subsidy reimbursements
- Transportation bills and receipts, including mileage records
- Records of payments for your services
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Tax professionals recommend that you organize receipts by expense category. Put the receipts or statements in folders or envelopes marked with each expense category, such as "transportation," "art supplies," or "food." Put the receipt or statement in the folder or envelope immediately after you get it.
Know What You Can Deduct
If you know what deductions you can take on your taxes, you'll be able to keep better records. Your home is your workplace and many of the items you use regularly are deductible. Keep receipts for things like light bulbs, toilet paper and other commonly used items.
Warning
Don't make the mistake of relying on canceled checks or credit card statements as proof that you purchased an item. Keep your receipts, and file them with your income tax return to ensure that all of your deductions will be accepted by tax authorities. note: Don't rely on canceled checks or credit card statements to prove that you made a purchase. Keep and file the original receipts
Understand Your Home Office Deduction
The IRS allows a home daycare provider to claim a deduction for the business portion of expenses related to the space and equipment used for care-related activities. This includes expenses such as utilities, repairs, and depreciation on furniture or other equipment.
However, there are limitations to what you can claim: You can only deduct expenses that exceed 10% of the gross income you receive
Food Program Reimbursements
The Child and Adult Care Food Program provides home daycare businesses with reimbursements for meals provided to the children and adults in care. If you participate in this program, you'll need to keep track of your reimbursements and actual meal expenses in order to determine whether you can take further deductions on food that you purchase.
Also Read: How to Itemize Sales Tax
Make Estimated Tax Payments
As a self-employed person, you are responsible for making estimated income tax payments throughout the year. Failure to do this not only can result in a penalty but also a very high tax bill in April. Keeping up with your accounts and submitting estimated tax payments promptly each quarter will help ensure you do not get stuck with the penalty and a large bill.
Consider Hiring a Professional
Even if your daycare business brings in only a small amount of income, it is worth hiring a tax professional to prepare your annual returns. This is because the professional may be able to identify deductions that you might otherwise miss.
Also, he can help ensure that you are reporting your taxable income correctly, reducing the risk of an audit or having to pay penalties and interest because of an error in your calculations.
If you decide to hire a tax professional, find out if she is an “enrolled agent”. This designation indicates that she has completed extensive training and can represent you to the IRS in case there are any questions about your return. You should also ask if she has experience in preparing returns for home daycare clients
Conclusion
Preparing for tax season takes time, but it certainly doesn't have to be difficult. By following the steps provided in this guide, you can be fully prepared to file your taxes by mid-April and get back any money that the government owes you.
If anything we've mentioned here is unclear or you'd like more information about how to prepare for tax season with your home daycare, please don't hesitate to contact us today.