IRS and the child care
Condensed and summarized by Fernando Olmedo. focalerta@yahoo.es
The IRS have an information center about child care, check in:
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Issue Number: IRS Tax Tip 2012-18
Inside This Issue
Get Your Prior Years Tax Information from the IRS
Sometimes taxpayers need a copy of an old tax return, but can't find or don't have their own records. There are three easy and convenient options for getting tax return transcripts and tax account transcripts from the IRS: on the web, by phone or by mail. There are eight things you need to know about getting federal tax return information from a previously filed tax return.
1. You can order transcripts online or by phone for the current tax year as well as the past three tax years. Earlier tax years must be requested with Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript.
2. A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes made after the return was filed.
3. A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data, including marital status, type of return filed, adjusted gross income and taxable income.
4. To request either transcript online from this website use our online tool called Order a Transcript. To order by phone, call 800-908-9946 and follow the prompts in the recorded message. When you use these automated self-service options, the selected transcript will be mailed to your current address of record. To have your transcript mailed to a different address, complete and mail Form 4506-T, Request for Transcript of Tax Return. The IRS does not charge a fee for transcripts.
5. To request a 1040, 1040A or 1040EZ tax return transcript through the mail, complete IRS Form 4506T-EZ. Businesses, partnerships and individuals who need transcript information from other forms or need a tax account transcript must use the Form 4506T.
6. If you order online or by phone, you should receive your tax return transcript within five to 10 calendar days from the time the IRS receives your request. Allow 30 calendar days for delivery of a tax account transcript if you order by mail using Form 4506T or Form 4506T-EZ.
7. If you still need an actual copy of a previously processed tax return, it will cost $57 for each tax year you order. Complete Form 4506, Request for Copy of Tax Return, and mail it to the IRS address listed on the form for your area. Copies are generally available for the current year as well as the past six years. Please allow 60 days for actual copies of your return.
8. Visit this website to determine which form will meet your needs. Forms 4506, 4506T and 4506T-EZ can be downloaded here or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).
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Issue Number: IRS Tax Tip 2013-08
Inside This Issue
Top 10 Ways to Get Help from IRS.gov
When you’re looking for tax information, you want to find it as quickly and easily as possible. That’s why the IRS redesigned its website. It’s now even more user friendly. Here are the top 10 reasons to visit IRS.gov:
1. Get 24/7 Access. Whether you do your taxes during the day or burn the midnight oil, IRS.gov has the tax forms and answers you need when you need them. It's accessible all day, every day. The Interactive Tax Assistant is a helpful tool that will answer many of your tax law questions. Several tax forms, publications and information are also available in Spanish.
2. Use Free File. Anyone can prepare and e-file their taxes for free with IRS Free File. Offered exclusively at IRS.gov, Free File’s brand name software or fillable forms do the work for you. If you made $57,000 or less, you qualify to use free tax software. If your income is more than $57,000 or you feel comfortable preparing your own tax return, use Free File Fillable Forms. This option provides the electronic versions of IRS paper forms.
3. Try IRS e-file. Whether you do your own taxes or hire a preparer, IRS e-file is the safest, easiest and most popular way to file a complete and accurate tax return. Since 1990, taxpayers have e-filed more than one billion returns. If you owe taxes, e-file gives you options to file early and pay by the tax deadline. If you are due a refund, you should receive it in less than 21 days.
4. Check Your Refund Status. You can track your refund using the enhanced “Where’s My Refund?” tool. It’s quick, easy and secure and has a new look this year. You can start checking on the status of your refund within 24 hours after the IRS has received your e-filed return. You can check your refund status four weeks after you mail a paper return. The tool includes a tracker that displays the progress of your return in three stages while it is processed. Once IRS approves your refund, “Where’s My Refund?” will give a date to expect your refund.
5. Make Payments Electronically. E-payment options are a convenient, safe and secure way to pay taxes. You can authorize an electronic funds withdrawal, use a credit or debit card or enroll in the U.S. Treasury’s Electronic Federal Tax Payment System.
6. Use the EITC Assistant. The Earned Income Tax Credit is a tax credit for working people who earned less than $50,270 in 2012. The credit can be worth as much as $5,891. Check your eligibility using the EITC Assistant tool. You may be among the millions of eligible workers who get the EITC this year.
7. Get Tax Forms and Publications. You can view and download tax forms and publications any time. It’s the easiest way to get IRS forms and publications.
8. Figure the Right Withholding. The IRS Withholding Calculator will help to ensure you don’t have too much or too little income tax withheld from your pay.
9. Request a Payment Agreement. Paying all your taxes on time avoids penalties and interest. However, if you cannot pay your taxes in full you may be eligible to use the Online Payment Agreement Application to request an installment agreement.
10. Get the Latest Tax Law Changes. Learn about tax law changes that may affect your tax return. Special sections of the website highlight changes that affect individual and business taxpayers.
The address of the official IRS website is www.irs.gov. Don’t be misled by sites that claim to be the IRS but end in .com, .net, .org. Some thieves use phony websites to gain your personal and financial information. They then use this information to commit identity theft or steal your money.
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Issue Number: IRS Tax Tip 2012-12
Inside This Issue
Tax Help ‘en Español’
Tax information can be tough to understand in any language, but it can be even more difficult if it is not in your first language. The IRS offers a wide range of free and easy-to-use products and services for Spanish-speaking taxpayers. Here are 10 ways you can get help from the IRS if you need assistance with your federal taxes in Spanish:
1. Get answers 24 hours a day seven days a week www.irs.gov/espanol has a wealth of information accessible all day, every day for individuals and businesses. You will find links to tax-related information, disaster relief, identity theft and warnings about common tax scams that victimize taxpayers. You can also check the status of your tax refund through the online tool ¿Dónde está mi reembolso? and even find out if you qualify for the Earned Income Tax Credit, a refundable tax credit for many people who earned less than $49,078, using the Asistente EITC on our secure website.
2. Find out all about Free File Let Free File do the hard work for you with brand-name tax software or online fillable forms. It's exclusively at www.irs.gov. Everyone can find an option to prepare their tax return and e-file it for free. If you made $57,000 or less, you qualify to use free tax software that is offered through a private-public partnership with manufacturers. Visit www.irs.gov/freefile and select En Español to review your options.
3. Find out about e-file IRS e-file: It’s safe. It’s easy. It’s time. Last year, 78 percent of taxpayers - 112 million people - used IRS e-file. In 2012, many tax preparers will be required to use e-file and will explain your filing options to you. IRS e-file has processed more than 1 billion returns safely and securely. If you owe taxes, you have payment options to file immediately and pay by the tax deadline. Best of all, combine e-file with direct deposit and you get your refund in as few as 10 days. For more information visit www.irs.gov/espanol and select Opciones Electrónicas to review your options.
4. Get up-to-date at the Multimedia Center Watch YouTube Video tax tips and listen to podcasts on various IRS topics in Spanish and English by entering the keywords “Centro Multimediático” into the search box of the irs.gov website.
5. TeleTax is a toll-free, automated telephone service. TeleTax provides helpful pre-recorded tax topic messages and refund information. You can find a list more than 125 TeleTax topics, available in Spanish and English, in the instructions for Form 1040, 1040A or 1040EZ. TeleTax can also help if at least four weeks have passed since you filed your return and you want to check on the status of your federal refund. Having a copy of your return handy will help you respond to the automated system prompts. TeleTax is available 24 hours a day, seven days a week at 800-829-4477 .
6. Get tax forms and publications You can view and download several tax forms and publications in Spanish directly from www.irs.gov/espanol at any hour of the day or night.
7. Visit the IRS Spanish Newsroom Find the agency’s most recent announcements, tips and information on recently implemented tax law that could affect you. Avoid missing any benefits and keep up to date by typing the keywords “Noticias en Espanol” into the search box of the irs.gov website.
8. Multilingual Assistance at IRS Taxpayer Assistance Centers Multilingual services are offered to taxpayers in more than 150 languages, including Spanish, through bilingual employees or an Over-the-Phone Interpreter. TAC locations, hours and services are available at www.irs.gov/individuals by clicking on the link for Contact My Local Office in the left tool bar section.
9. Toll-Free Telephone Assistance is available from Spanish-speaking IRS representatives by calling the IRS customer service line at 800-829-1040 and then pressing the number 8.
10. Stay connected to all the newest information and tax tips in Spanish by following us on Twitter @IRSenEspanol.
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Review of IRS Webinar on Family Child Care
IRS broadcasted a webinar "Tax Related Guidance for Child Care Providers" to explain some of the unique tax rules affecting family child care providers.
The hour-long broadcast covered reporting of income, record keeping tips, business use of the home calculation, depreciation and the Food Program and food expenses.
The webinar is available to be viewed
The webinar host referred the audience to the IRS Child Care Tax Center where additional IRS resources are posted.
The webinar host pointed out that the IRS will look for unreported income by examining a child care provider's contract for language about fess such as: late pick up fees, registration fees, transportation fees, and other fees.
In other words, providers who have such fees in their contract will be assumed to have collected these fees, even if they weren't! To protect themselves, providers who are not consistently collecting fees listed in their contract should start collecting them or take them out of their contract
The host advised providers to report only the "net" income or expenses when reporting Food Program income and expenses. Unfortunately, this advice is contradicted by the IRS Audit Child Care Provider Audit Technique Guide which says, "the netting method is not a preferred method since an [IRS] Examiner will always be looking for the food reimbursement amounts."
The IRS added this language to the Audit Guide at my request after I pointed out that using the netting method has created confusion for many child care providers and tax preparers. For further information about netting, see my article "Are CACFP Reimbursements Taxable Income?"
There were several questions posed by the audience that were answered during the webinar. Can a child care provider deduct expenses for maintaining her yard (such as a lawn mowing service)?
Answer: Yes.
Can a child care provider use the standard meal allowance rate if she operates her business outside of her home?
The IRS agents answering questions were not sure of the answer, but referred the audience to IRS Revenue Procedure 2003-22 which established this rate (I lobbied to get this rule adopted in 2003).
This Procedure says the standard meal allowance only applies to child care providers who do care out of their own home. However, before the standard meal allowance rule was in force, the IRS did allow child care providers to use the higher Food Program reimbursement rate (Tier I) to estimate their food expenses. Therefore, I believe that the standard meal allowance rate could be used in this situation as a reasonable estimate of food expenses.
Several questions were raised about the ability of family child care providers to deduct expenses associated with their home (property tax, mortgage interest, house insurance, house repairs, utilities, and house depreciation) when the provider was not licensed. Providers can deduct these house expenses as long as they:
"...have applied for (and not have been rejected), been granted (and still have in effect), or be exempt from having a license certification, registration, or approval as a daycare center or as a family or group daycare home under state law." See the instructions to IRS Form 8829 Expenses for Business Use of Your Home.
There continues to be confusion about this point, despite the clear directions in these instructions that are repeated in IRS Publicaiton 587 Business Use of Your Home. I've had to fight on behalf of providers who were exempt from licensing requirements in several IRS audits. I've also written an article on this topic, "Do I Have to be Licensed to Deduct My House Expenses?"
Commentary
It's a good thing the IRS recognizes that family child care providers face unique challenges when filing their taxes. This webinar is a helpful step. The IRS has also reached out to the National Association for Family Child Care to offer additional educational resources. They will be presenting a workshop at the NAFCC annual conferenc in Atlanta (where I will be co-presenting).
I believe most family child care providers will find this webinar of limited use. The webinar was addressed primarily at new child care providers. However, they may be confused by the many references to the IRS Tax Code and the lack of practical examples that might have made the presentation more understandable. Experienced child care providers will likely not find much of interest, unless they want a review of the basics.
The host referred the audience to the many IRS publications that offer more detail on topics such as depreciation and business expenses. However, these publications are not easy to understand and usually do not refer specifically to family child care.
What's a "Red Flag" and Should I Worry About It?
"Will it create a 'red flag' with the IRS?" is a common question I get asked at my family child care record keeping and tax workshops.
Many child care providers worry about putting something on their tax return that will create a "red flag" and attract the attention of the IRS.
"Will I get audited if I claim a Time-Space % above 40%?"
"Should I claim that I use all the rooms in my home on a regular basis?"
"Is hiring your own child a 'red flag'?"
It's human nature for family child care providers to worry about being audited by the IRS. We will do almost anything to avoid it.
The Short Answer
My general answer to these questions is, "If I knew what was a 'red flag' I wouldn't tell you, because then you wouldn't claim what you are entitled to on your tax return."
The Longer Answer
The IRS computers use complicated mathematical formulas to identify family child care tax returns for audits. What exactly will cause your tax return to be audited is a closely guarded IRS secret. In general, the more out of the norm your tax return is from other child care providers, the more likely you are to be audited.
Here are two situations where you are more likely to be audited:
* Your expenses for a particular line on Schedule C are way out of whack when compared with other child care providers. Let's say you made $50,000 in income and claimed $25,000 in Supplies on line 22. This will probably attract the attention of the IRS because the supply expense is much higher than what most child care providers spend who make $50,000. No one knows what "average" child care providers spend on supplies by income, so it's hard to know exactly what will trigger an audit.
The best thing you can do to reduce the chances of an audit is to not lump a lot of your business expenses onto one line on Schedule C. Many providers are tempted to put a lot of their expenses under Supplies because it's often not clear what other lines to put their expenses on. If your largest expense on any one line on Schedule C is more than twice as much as the next largest expense, then you might want to spread out your some of your expenses over more lines.
On the back of Schedule C is several blank lines that you can use to list your Other Expenses (line 27a). Although there is no rule that requires you to put expenses on any particular line, I encourage providers to use the following expense categories for line 27a: Food, Toys, Cleaning Supplies, Activity Supplies, and Household Items. These general categories can be used to cover many of your business expenses.
The Best Answer
Don't worry about being audited. Your chances of being audited are less than 2%.
Make sure that you have the records to back up the numbers you put on your tax return. Don't worry if your numbers might attract the attention of the IRS. No one knows if they will. But, if your records are complete, you have nothing to worry about.
Claim the business deductions you are entitled to claim! The worst thing that can happen is that you get audited and might not be able to claim some of them because they weren't "ordinary and necessary" business expenses. But, by not claiming some expenses to begin with, you are probably paying more taxes that you should!
