Be careful what you say

Be Careful What You Say When Talking About Former Clients

By Tom Copeland, Published with permission.

Parents who enroll in your family child care program have a high expectation of privacy.

They don't want any information shared about their family unless the law requires you to share information, or unless they have given you permission.

Many child care providers have created their own privacy policy to reassure parents that they will keep confidential any information about the families in their care. See my article, "Do You Have  Privacy Policy?"

Your privacy policy should also extend to after the family leaves your program.

It's unprofessional to talk about parents (or their children) after they leave your program. It may also be illegal.

You may be tempted to talk about your past families to complain about the parent's failure to pay you, or about the child's behavioral problems.

If you say anything about a past family, you should be very careful of what you say.

It is against the law (defamation) to say something about a past family that damages their reputation in the community. If you speak it, it's slander. If you write it down, it's libel. If what you say is true, however, you haven't broken the law.

So, if you say to another provider, "Mrs. Jones is a deadbeat and her child acted like he had ADHD," you have committed slander since this certainly damages Mrs. Jones' reputation.

If you say, "Mrs. Jones left owing me $250 and I had to spend extra time managing her child," this is not illegal if you can prove that what you said is true.

As you can see, it can be difficult to avoid saying the wrong thing.

Sometimes providers are tempted to warn other providers about a parent who has left their program. You don't want the next provider to go through what you went through with the parent. Even though your motivation may be good, I don't recommend sharing any information about past families with another provider.

Providers can protect themselves against "bad" parents by asking them for the name of their previous caregiver. If the parent refuses to give you the name, don't provide care.

Regardless of a parent's past actions in not paying their bill, providers can protect themselves by following two rules: Parents must pay at least a week in advance and parents must pay for the last two weeks in advance. By following these two rules, providers won't have to worry about parents leaving owing them money.

Three Key Questions

If a parent does give you the name of their previous caregiver, ask the previous caregiver these three key questions:

* "How long did you provide care?"

* "If you had the chance, would you do it again?"

* "What can you tell me about the parent or child that I should consider before enrolling them?"

As the person asking the questions, you are not in danger of violating any defamation laws. This is because you aren't sharing the information with someone else.

However, if you are the previous provider and are being asked to talk about a past family, you are in trouble if you say something that damages the parent's reputation.

First, you should check with your licensing worker to see if it's a violation of your state's child care licensing law to even acknowledge to another person that you used to provide care for a family. (In Minnesota this is against the law). If so, you would say to the provider, "I can't answer any of your questions unless I have written permission from the parent to talk to you."

If you do have such permission, then you could answer the first two questions briefly by saying, for example, "1 year" and "no."

That may be enough information for the new provider. If you do answer the third question, be very careful to stick to the facts you can prove: "The mother paid me late three times in twelve months." Don't characterize the parent as "irresponsible" or "unstable" or "not trustworthy."

There can be a fine line between saying the right and wrong thing. Keep it simple and don't talk about other families.

Tom Copeland - www.tomcopelandblog.com

Image credit: fruitofspirit-mollye.blogspot.com

For more information about privacy/confidentiality, see my bookFamily Child Care Legal & Insurance Guide.

The IRA and the saver's credit

The IRA and the Saver's Credit: An Unbeatable Tax Benefit!

Condensed text by Fernando Olmedo, focalerta@yahoo.es

One of the biggest tax breaks available to family child care providers is the Individual Retirement Account (IRA).

When you put money into an IRA for 2012 it will reduce your 2012 taxable income. You won't have to pay tax on it (along with the interest you earned) until you withdraw it after age 59 1/2. 

By not having to pay tax on your contributions and interest for many years your money will accumulate much faster than if you invested outside an IRA

Note: a ROTH IRA works differently than all other IRAs. You won't get an immediate tax deduction when you make your contributions, but you won't pay any tax on the contributions and the interest earned when you withdraw them.

In general, you will be better off contributing to a Roth IRA than a Traditional IRA.

Family child care providers may be eligible to contribute to the following IRAs:

Traditional IRA

Eligibility - You are eligible to contribute to a Traditional IRA if your family's taxable income* is below:

        $69,000 in 2013 or $70,000 in 2014 - Single

        $115,000 in 2013 or $116,000 in 2014 - Married filing jointly where your spouse is covered by an employer-based retirement plan

        $188,000 in 2012 or $191,000  in 2013 - Married filing jointly where your spouse is not covered by an employer-based retirement plan    

    

Contributions are tax deductible. Contributions and interest earned are taxed when withdrawn

Maximum contribution amount

        2013: $5,500 per person + $1,000 if you are age 50 or older

        2014: $5,500 per person + $1,000 if you are age 50 or older

Deadline for 2013 contributions: April 15, 2014.

Roth IRA

Eligibility - You are eligible to contribute to a Roth IRA if your family's taxable income* is below:

        $127,000 in 2013 or $129,000 in 2014 - Single

        $188,000 in 2013 or $191,000 in 2014 - Married filing jointly 

Contributions are not tax deductible. Contributions and interest earned are not taxed when withdrawn

Maximum contribution amount

        2013: $5,500 per person + $1,000 if you are age 50 or older

        2014: $5,500 per person + $1,000 if you are age 50 or older

Deadline for 2013 contributions: April 15, 2014.

SIMPLE IRA

Eligibility - All family child care providers are eligible regardless of their family's income.

Contributions are tax deductible. Contributions and interest earned are taxed when withdrawn

Maximum contribution amount

        2013: $12,000 + $2,500 if you are age 50 or older

        2014: $12,000 + $2,500 if you are age 50 or older

Deadline for 2013 contributions: April 15, 2014. However, you must have first established your SIMPLE before October 1, 2013 to make a 2013 contribution.

Note: For all IRA contributions, you cannot make a contribution in excess of your profit for the year. So, if your profit was $4,000, the maximum you could contribute to an IRA would be $4,000.

* family taxable income is the profit from your business (income - expenses), plus the gross income from your spouse.

The saver’s credit

If you had the chance to put $350 into a savings account and have it immediately turn into $1,000, would you do it?

You have this chance if you are a low-income family child care provider and make a contribution to any Individual Retirement Account (IRA) by April 15, 2012.

This federal rule is called the Saver's Credit. If you are single you are eligible for this credit if your adjusted gross income is less than $28,750 ($29,500 for 2013). If you are married your adjusted gross income must be less than $57,500 ($59,000 for 2013). 

If you are eligible you can claim this credit by making a 2012 contribution to any IRA: 401(k) or 403(b) plan, Traditional IRA, Roth IRA, SIMPLE IRA or SEP IRA. To contribute to a SIMPLE IRA you must have set one up before October 1, 2012. 

The tax credit is worth 10%, 20%, or 50% of your IRA contribution, up to a maximum $2,000 contribution.

Let's look at an example of how this works. 

Jayne Provider is single and has an adjusted gross income of $16,500 in 2012. (Adjusted gross income is your business profit plus any adjustments on the front of Form 1040.) She contributes $1,000 into her 2012 Traditional IRA account in March 2013. She is entitled to a 50% tax credit on her contribution - $500. Also, her contribution is tax deductible and since she is in the 15% tax bracket she will receive an additional $150 tax deduction. In the end, Jayne contributed $1,000 into her IRA and reduced her taxes by $650. Yes, she gets a double tax benefit from her contribution!

If Jayne made a contribution to a Roth IRA she would only get the $500 Saver's Credit since contributions to a Roth IRA are not tax deductible.

To claim your Saver's Credit fill out Form 8880 Credit for Qualified Retirement Savings Contributions and carry the credit forward to Form 1040. 

If you made an IRA contribution in the past three years and were income-eligible for the Saver's Credit you can amend your taxes (IRS Form 1040X) and get a refund.

To set up an IRA contact your local bank, credit union, mutual fund or financial planner.

If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be eligible for a tax credit, depending on your age and income.

Here are six things the IRS wants you to know about the Savers Credit:

1. Income limits The Savers Credit, formally known as the Retirement Savings Contributions Credit, applies to individuals with a filing status and 2011 income of:

Single, married filing separately, or qualifying widow(er), with  income up to $28,250

Head of Household with income up to $42,375

Married Filing Jointly, with incomes up to $56,500

2. Eligibility requirements To be eligible for the credit you must be at least 18 years of age, you cannot have been a full-time student during the calendar year and cannot be claimed as a dependent on another person’s return.

3. Credit amount If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 ($2,000 if filing jointly). The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.

4. Distributions When figuring this credit, you generally must subtract distributions you received from your retirement plans from the contributions you made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date - including extensions - for filing the return for the credit year.

5. Other tax benefits The Retirement Savings Contributions Credit is in addition to other tax benefits you may receive for retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.

6. Forms to use To claim the credit use Form 8880, Credit for Qualified Retirement Savings Contributions.

For more information, review IRS Publication 590, Individual Retirement Arrangements (IRAs), Publication 4703, Retirement Savings Contributions Credit, and Form 8880. Publications and forms can be downloaded 

Claiming expenses for items bought before your bussiness

How Do You Claim Expenses for Items You Bought Before Your Business Began?

By Tom Copeland, posted with permission

There are two different tax rules to apply to items you bought before your family child care business began.

Therefore, we must separate these expenses into two categories.

Items Purchased Specifically For the Business (Start-Up Expenses)

The first category of expenses are those items you bought specifically for the business. They could be a fire extinguisher, toys, supplies, curriculum, advertising, training fees, playground equipment, and so on.

You can deduct up to $5,000 of these expenses in the year your business begins. Start-up expenses are those that individually cost less than $200 or will last less than one year.

* If your start-up expenses exceed $5,000, you must depreciate any amounts above $5,000 over 15 years.

* If you bought an item that cost more than $200 and will last longer than one year, you must depreciate it over 15 years once your business begins.*

For example, let's say you bought ten $50 toys, $450 curriculum, $1,000 in advertising and $100 in training fees between October and December 2013. Your business began on January 1, 2014. You can deduct all of the toys and the training fees because they cost less than $200. You can deduct all of the curriculum and advertising because they are items that you would normally deduct in one year (because they don't last longer than a year).

If you bought a $1,500 playground equipment set in December 2013, you would start depreciating this over 15 years in 2014.

What if You Haven't Depreciated Your Items?

Many providers fail to claim the depreciation they are entitled to. If you did not claim depreciation for household items you owned before you went into business, you can file IRS Form 3115 and recapture all previously unclaimed depreciation on your current tax return. You can also use this form to recapture depreciation on items you bought after you went into business, but didn't depreciate. There is no limit on how far back you can go to recapture this depreciation. See my article "How to Claim Previously Unclaimed Depreciation."

Items Not Purchased Specifically For the Business

The second category of expenses are those items you bought before your business began that were not purchased specifically for your business. They include everything you owned before your business began, then you started using them for your business.

These expenses include: furniture (beds, tables, chairs, sofa), appliances (washer, dryer, freezer, stove, refrigerator, stove, microwave), rugs, lamps, end tables, pots and pans, silverware, television, computer, bedding, pictures on the wall, lawn mower, snow blower, and so on.

These expenses must be depreciated once your business begins. You will depreciate them based on the lower of two numbers: the original price or its fair market value at the time you started using it in your business. In almost every situation this will be the fair market value.

It doesn't matter if the original purchase price or the fair market value was less than $200, or the items were ones that you would normally not depreciate if you purchased them after your business began. Everything must be depreciated.

You can obtain a substantial tax deduction if you conduct an inventory of virtually everything in your home. See my article "Conduct a Household Inventory to Save Money."

For example, let's say you purchased a clock for $25 before your business began and it was not purchased specifically for your business. You would have to depreciate it once your business began. If you bought the same $25 clock after your business began, you would be able to deduct it in one year because it cost less than $200.

Special Circumstances

If you made a home improvement before your business began, add the cost of the home improvement to your house and depreciate it as part of your home. See my article "How to Depreciate Your Home."

If you made house repairs before your business began and they were done to help you get ready for your business, treat them as Start-Up Expenses. If you made a house repair before your business began that was unrelated to your business, you cannot deduct it.

If you know you are going to have a loss in your first year of your business, you can elect to depreciate over 15 years all of your start-up expenses. See IRS Publication 535 Business Expenses.

* Note: Technically, when I say to depreciate these items, IRS rules say to amortize them. What's the difference? In this case, amortizing means to spread the deduction over 180 months (15 years). It's possible for these months to extend over 15 years. Aren't you glad you know this?

Final Note

I've heard from several family child care providers recently that their tax preparer wouldn't allow them to claim any start-up expenses or depreciate household items they owned before their business began. You may need to insist that you want to claim deductions for both categories of expenses I described above.

If your tax preparer says you can't claim start-up expenses, tell them to read IRS Publication 535 Business Expenses.

If your tax preparer says you can't depreciate household items you owned before your business began, tell them to read the IRS Child Care Provider Audit Techniques Guide.

This Guide says: "For many providers, when they start their business many items which were personal use only are used in the business. They are entitled to depreciate the business use portion of those assets. For assets purchased prior to being placed into service, the basis for depreciation is the lower of the cost or the fair market value at the time the asset is placed in service."

Tom Copeland - www.tomcopelandblog.com

Image credit: childcarecenter.us 

For details on how to depreciate items, see my 2013 Family Child Care Tax Workbook and Organizer.

Depreciation schedule.

Get a Copy of Your Depreciation Schedule

By Tom Copeland, posted with his permission.

Depreciation is the process of spreading the deduction of certain items you purchase for your business over a number of years.

 

It's a topic that few family child care providers fully understand.

 

The reason is that depreciation rules are complicated: there's the regular rules, the 50% bonus rule, the Section 179 rule, and the new 2014 $500 safe harbor rule. It's hard to make sense of it all.

 

If you have your taxes done by a tax professional, he or she will prepare a depreciation schedule (sometimes called a depreciation worksheet) that will show all the details of how your depreciation deductions for the current year were calculated.

 

These details include:

 

* The cost of the item

 

* The date it was first used in your business

 

* The number of years the item is being depreciated

 

* The method used (straight line or accelerated), and

 

* Any special rules that were applied to the item (50% bonus, Section 179, etc.).

 

Each year, tell you tax professional about any new depreciable items you purchased, so he or she can add them to your depreciation schedule.

 

The depreciation schedule is not submitted to the IRS with your tax forms. It's a tool used by your tax professional to document how your depreciation deductions were calculated in the current year and how they will be calculated in subsequent tax years.

 

Your depreciation schedule is a crucial document for your business. Therefore, you will want a copy for your own tax records for each year you file your business tax forms.

 

If you don't have a copy,  you won't be able to tell how the amount of depreciation was determined  on IRS Form 4562 Depreciation and Amortization. 

 

Therefore, before paying your tax professional, ask for a copy of your depreciation schedule. Although your tax professional is not required by law to give a copy to you, it's the professional thing to do.

 

Some tax professionals may say that this schedule is their property and belongs to them. They may be worried that you want the schedule because you are planning to use a different tax professional in the future. Even if this is true, I don't believe that it's a good reason not to give you what you paid for. If you do use a new tax professional in the future, he or she will need this schedule to file an accurate tax return for you.

 

If your tax professional refuses to give you your depreciation schedule, explain that you need it so you can see how your depreciation deductions were calculated.

 

You will need your depreciation schedule if:

 

* You ever use a different tax professional

 

* If your tax professional retires, dies, or loses his or her copy, or

 

* If you are ever audited.

Lastly, if you do your own taxes in lat

er years, you will not be able to accurately claim depreciation deductions without this depreciation schedule.

 

Before hiring a tax professional, ask if they will provide this schedule to you along with your completed tax forms. If not, look elsewhere.

 

Alison Jacks, an Enrolled Agent in California has written a fine article about depreciation schedules. In it, she posts an excellent sample depreciation schedule that will give you an idea of what you need for your tax files.

 

Tom Copeland - www.tomcopelandblog.com

 

Image credit: www.vertex42.com

 

For information on how to claim depreciation deductions, see my 2013 Family Child Care Tax Workbook and Organizer.

________________________________________________

If you are making your income tax with me (Angel Olmedo 7730867-7387 tel, 847-849-1668) you will receive always a list of yours depreciated items. All income tax details or copies of your income tax are going to be available for five years in my office. If you change rates filler, be sure to take him yours last incomes tax and that they are also the depreciated list item.

What records should you keep and for how long.

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

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.