Questions and Answers from Tom Copeland's Tax Webinar
Published with permission.
Incorporation
- In general, I don’t recommend that providers incorporate their business as an LLC or S or C Corporation. It’s a complicated decision involving legal and tax issues. I would only consider incorporating if you plan to be in business a long time, have a lot of personal assets you want to protect, have an annual profit of at least $30,000 and don’t mind doing extra paperwork each month. Before making this decision talk to a tax preparer and lawyer who understand family child care and can explain the consequences. I’ve written about this in detail in my book Family Child Care Legal and Insurance Guide.
- You will fill out the same payroll tax forms as a corporation the same way you would do if you had employees as a sole proprietor (self employed). You would also have to treat yourself as an employee of the corporation and withhold Social Security/Medicare taxes and follow the other federal and state payroll tax issues for yourself.
“If I incorporate and make my wife and daughter co-owners, are they then not employees and I don’t have to worry about payroll taxes?”
- No.You would have to withhold Social Security taxes on your wife and daughter (if she was age 18 or older).
“I just started my business and haven’t incorporated it. Can I use my Social Security number with parents?”
- You can give your Social Security number to parents for them to claim their child care tax credit. I recommend you get an Employer Identification Number (EIN) and use this in place of your Social Security number. You don’t need to be incorporated to get an EIN.
- If you file as a partnership or corporation you will not file Form 8829, Form 4562 or Schedule C. If you file as a partnership you must file Form 1065 U.S. Return of Partnership Income and each partner must file Form 1065 Schedule K-1 Partner’s Share of Income, Credits, Deduction. If you file as an S Corporation file Form 1120S U.S. Income Tax Return for an S Corporation. If you file as a C Corporation file Form 1120 U.S. Corporation Income Tax Return.
Other
“Would you advocate getting your taxes done by more than one preparer?”
- No. Find someone who understands your business and has experience doing other family child care tax returns. If you are unhappy with your tax preparer and can’t resolve your differences, seek out another tax preparer and drop your old one.
“Can I use the handouts I got for this webinar for future family day care trainings?”
- Yes. Make sure my name and my blog address is on the bottom (tomcopelandblog.com).
“If I deducted everything I would show a loss. Is it better to show a higher profit if I wanted to apply for an auto loan?”
- Sometimes claiming all the deductions you are entitled to will reduce your profit and make it hard to get an auto or home loan. In this case, explain to the loan officer that some of the expenses on your Schedule C may not represent actual costs to you each year. This includes depreciation from Form 4562 and house depreciation on Form 8829. See my article for more information.
Tom Copeland - www.tomcopelandblog.com
For more information about the pros and cons of incorporating, see my Family Child Care Legal & Insurance Guide.
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