What Records Should You Keep and For How Long?
Summarized and condensed by Fernando Olmedo, focalerta@yahoo.es .
Do you feel yourself buried in paperwork as a family child care provider?
There are enrollment forms, children's medical records, contracts and policies, permission slips, business receipts, tax forms, insurance policies, licensing forms, and so on.
All of these documents are important, but some are more important than others. Also, how long do you have to keep them?
This is especially a problem for child care providers who have been in the business for many years. After fifteen years in business you might need an entire room in your house to store all of these records!
So, what records should you keep, and what can you get rid of?
The general rule is that you don't have to keep any records, unless you are required to do so, or doing so will protect you. Therefore, you should save records to:
* Meet state child care requirements
* Protect yourself against a lawsuit
* Defend your tax deductions in an IRS audit
* Protect yourself against a lawsuit
* Defend your tax deductions in an IRS audit
Meet State Child Care Requirements
As with everything else involving family child care, check with your regulator or licensor first. Your state may have rules requiring you to keep certain records for a number of years. It's probable that they are required to keep more records on you than you are!
You may also want to ask your licensor what records they keep on you and for how long.
Protect Yourself Against a Lawsuit
Did you know that it's possible a child or parent could sue you years after they have left your program because of an injury suffered by the child while enrolled in your program?
It can happen. I once talked with a provider who had been out of business for ten years when she received a letter from a former child's lawyer announcing that they were suing her for an injury the child suffered in her program when she was three years old.
In general, children retain the right to sue until reaching the age of 18 and in many states they have additional years. For example, in Minnesota everyone has the right to sue for six years after an injury. Children can sue up to the age 18 plus one year. If a child is injured at the age of 12 years old, the child could sue until she reaches the age 19.
Therefore, you need to keep the following records that can help you if you are sued: enrollment/termination records, injury reports/notes, and insurance policies.
You want to keep enrollment/termination records to show when a child was in your program. This can be important if it can be shown that the child was injured at a time she was not enrolled with you.
Whenever a child is injured in your program, keep an injury log that describes the accident and your actions. Even though you may have reported an injury to your regulator or licensor, it's in your own best interest to keep your notes on injuries and incidents. Many states will allow children to sue for sexual abuse even after the child reaches the age of majority.
To be sure that you can prove you had business liability insurance and to show the coverage amounts of your policy at the time, save a copy of your yearly business liability policies. If you have other insurance for your business, such as a rider for your car insurance or homeowner's endorsement policy, you will also need to keep these policies. Store these in a safe deposit box. Don't rely on the insurance company to have adequate records.
Keep all of the above records until the last child in your program reaches at least age 18 (or longer depending on your state law).
Defend Your Tax Deductions in an IRS Audit
IRS rules require you to keep your tax records for three years after you file them. If you have employees you should keep payroll records for four years. Your state may require you to keep your federal and state tax records for longer than three years.
See my article, "Should I Save My Records for 7 Years?"
Therefore, save all records associated with your tax return: receipts, cancelled checks, credit/debit card statements, record keeping calendars, photographs, and other written records. For items you are depreciating (furniture, appliances, home improvements, swing sets, etc.) save these receipts for as long as you are depreciating the item, plus three years.
In my experience, when child care providers pay too much in taxes it's because they failed to keep these records.
Although you are not required to provide your daycare parents with a record of their payments, it's a good idea to do so. See my article, "The Truth About End-of-Year Parent Receipts."
Clean House!
Now that you know what records to keep and for how long, it's time to go through all of your records and get rid of what you no longer need. If you buy a shredder to destroy you records, the shredder is tax deductible!
2013 Taxes Done? Now Take These Steps
If you have completed your taxes, congratulations!
Here's a checklist of final steps you should take as a family child care provider before you can forget about last year's taxes:
1) Gather all your business records that you used for your tax return and put them with a copy of your tax return.
2) Record the odometer readings for all your busines vehicles as of January 1.
3) Collect receipts from all the daycare parents that indicate how much they paid you. Have each parent sign your copy.
4) Save all your canceled checks (carbon copies) and monthly bank statements for all your personal and business checking and savings accounts.
5) Gather all copies of your Food Program monthly claim forms.
6) Collect your attendance records and any sign-in/out sheets signed by parents.
7) Ask your tax preparer for copies of all the backup worksheets or depreciation schedules used to prepare your taxes. In his income tax should be the following reports: Depreciation Worksheet, Form 8829 Detailed Expenses, Schedule C Detailed Expenses, Time Space Hours Children Present andyour business Vehicle Mileage.
8) Put all the records from above into a sealed plastic storage box (100% tax deductible!) to protect them from water damage. Put the storage box in a safe, dry place.
9) Save these records for at least three years (until April 15, 2017). See others articles about when you need keeps its more than 3 years.
IRS Offers Tips for Safeguarding Tax Records
Hurricane season has started and the IRS encourages individuals and businesses to safeguard their tax records against natural disasters by taking a few simple steps.
Here are four tips from the IRS to help you prepare in case a disaster strikes.
1. Backup records electronically Taxpayers should keep a set of backup records in a safe place away from the original set. Keeping a backup set of records, bank statements, tax returns, insurance policies, etc is easier now that many financial institutions provide statements and documents electronically. Even if the original record is only available on paper, it can be scanned into an electronic format. With documents in electronic form, taxpayers can download them to a portable backup storage device such as an external hard drive, CD or DVD that you can take with you in the event that you need to evacuate.
2. Document valuables Taxpayers should photograph or videotape the contents of their home, especially items of higher value. A photographic record can help an individual prove the market value of items for insurance and casualty loss claims. Photos should be stored at an outside location.
To document your valuables, the IRS has a disaster loss workbook, Publication 584, Casualty, Disaster and Theft Loss Workbook, which can help taxpayers compile a room-by-room list of belongings.
3. IRS Ready to Help If a disaster strikes, affected taxpayers can call 1-866-562-5227 to speak with IRS specialists trained to handle disaster-related issues. Taxpayers can request copies of previously-filed tax returns by filing Form 4506, Request for Copy of Tax Return. Taxpayers can also request transcripts showing most line items on a return online at IRS.gov, by calling 1-800-908-9946 or by using Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript or Form 4506-T, Request for Transcript of Return.
Are Receipts Obsolete if You Use a Scanner?
It's a family child care provider's worst nightmare: You are in an IRS audit and the auditor asks to see your business receipts. As you pull out your receipts, you discover that the ink on all them has faded and the pages are blank!
The auditor is not amused. Is your situation hopeless?
Not if you had scanned your receipts into a scanner and can display your records on a computer or print them out.
A growing number of child care providers are using a scanner to save and organize their records. A scanner allows you to scan your receipts into your computer, by saving the image of your recipts. You can then sort these records on your computer by putting them into different business categories (parent payments, toys, supplies, utilities, etc.).
If you scan your receipts, do you still need to save the hard copy for three years? No.
IRS Revenue Procedure 97-22 says you can throw away records after you have scanned them into your computer. You will need to be able to produce your scanned records at an audit. I recommend saving your scanned records on a flash drive and storing your flash drive in a safe place (such as a safe deposit box).
If you use a scanner, be careful not to throw away receipts until you are positive that they are properly scanned and saved on your computer. Note: some states may not accept scanned records, so check with your state department of revenue before throwing away the hard copies your records.
