Several Questions

[EchoMom]

I'm projecting that my business is going to make about 30k in this my first year. How much would you expect I should be able to get that amount down to after deductions? I care for 6 kids, bought a TON of stuff this year for daycare, have a TS% of about 36%, and am not on the food program although I provide breakfast, lunch, and 2 snacks.

Also, when I file, do I still file jointly with my husband? I normally use Turbo Tax, what do I use to include the business?

Does this mean that I will now be itemizing and NOT taking the standard deduction of about $11,000?

What if my itemizing does not exceed the standard deduction of 11K, does that mean all my receipts and record keeping would be for nothing? Although I am hoping I can certainly deduct more than just 11K.

THANKS!

[EchoMom]

Also, my mom has just joined me full time as my equal partner. Not my employee. She has been part of the business for the whole year, but is only now going to start to take half of the income we make. How will this change things for next year? How do I prove that although the checks were all written to me and put into my bank account, I did not keep it out because I am withdrawing half and giving it to my mom as her equal pay. I do not want to have to pay any employee type stuff because she's not my employee, we are euqal partners.

And, when we purchase big items over $100, for an easy example, if we bought a $200 item for daycare, we each would pay $100. So does that mean we would deduct the whole $100 item, or it needs to be depreciated because technically it's over $100 item?

Also, should I even be worried about things being exactly exactly correct because the likelyhood of being audited is so so low?

[kitykids3]

I can't help you with the info with your mom being a partner. I would suggest getting some professional help with that.
However I did want to say, that the likelihood of us in-home family providers being audited is not low. People who use their home for business are more likely to be audited. I personally do the best I can for accurate recordkeeping, because you just never know.
Good luck!

[Blackcat31]

Also, my mom has just joined me full time as my equal partner. Not my employee. She has been part of the business for the whole year, but is only now going to start to take half of the income we make. How will this change things for next year? How do I prove that although the checks were all written to me and put into my bank account, I did not keep it out because I am withdrawing half and giving it to my mom as her equal pay. I do not want to have to pay any employee type stuff because she's not my employee, we are euqal partners.

And, when we purchase big items over $100, for an easy example, if we bought a $200 item for daycare, we each would pay $100. So does that mean we would deduct the whole $100 item, or it needs to be depreciated because technically it's over $100 item?

Also, should I even be worried about things being exactly exactly correct because the likelyhood of being audited is so so low?

Personally, I think you were better off doing it the way Tom Copeland said to do it and pay your mom as an employee.

If you don't he said you depreciate your home. Plus if she is an equal partner, then she would have the right to deduct 50% of ALL expenses. Those would also be split up...electric, heat, meals etc and all at time/space percentage.

I also think that you will have a hard time showing that all income was not yours if the checks are all made out to you.

Why not have 3 of the 6 kids pay her while 3 pay you?

Honestly, I don't do my own taxes and do not know much about doing them, but it just seems like you would be better off paying her as an employee vs how you are wanting to do it. It seems like the way you are doing it is more work and less deductions....kwim?

I would also NOT assume that your chances of being audited are slim.

I think your chances are greater because not only the fact that you are self-employed but also because of the complexity of your situation.

[EchoMom]

I just thought it was low because in Tom's book he said that in home daycares only have a 2% chance of being audited, or something along those lines.

I also thought that if I paid my mom as an employee, that Tom's book said I would then have to pay benefits or Social Security tax or something like that.

Also, I am not the home owner so I cannot depreciate the house, I also don't really pay utilities exactly. My mom has the mortgage and all the bills in her name. But I pay her a flat rent of $700 including utilities. So I was thinking it wold be pretty simple for me as far as that goes. I could deduct 36% of all my $700s for the year.

We thought about having 3 kids pay me and 3 pay her but it's not that simple. I have several part timers that come opposite of one another and the checks don't work out to be identical amounts.

[Blackcat31]

I just thought it was low because in Tom's book he said that in home daycares only have a 2% chance of being audited, or something along those lines.

I also thought that if I paid my mom as an employee, that Tom's book said I would then have to pay benefits or Social Security tax or something like that.

Also, I am not the home owner so I cannot depreciate the house, I also don't really pay utilities exactly. My mom has the mortgage and all the bills in her name. But I pay her a flat rent of $700 including utilities. So I was thinking it wold be pretty simple for me as far as that goes. I could deduct 36% of all my $700s for the year.

We thought about having 3 kids pay me and 3 pay her but it's not that simple. I have several part timers that come opposite of one another and the checks don't work out to be identical amounts.

How about setting up a checking/savings account that is in the business/child care name and then have all parents write out their checks to the child care name and then deposit them into that account and just write out two separate checks; one for you and one for your mom.

Would that work better?

I am sure Tom could comment on that part of it.

[EchoMom]

Yes we were thinking of getting not a business account but just a joint account together, seperate from her own personal checking and seperate from my husband and my account. We are planning to put all the checks into our joint account then withraw our amounts as payments to ourselves and just leave some in there and use that account to do the daycare grocery and item shopping.

[TomCopeland]

Expenses

I'm projecting that my business is going to make about 30k in this my first year. How much would you expect I should be able to get that amount down to after deductions? I care for 6 kids, bought a TON of stuff this year for daycare, have a TS% of about 36%, and am not on the food program although I provide breakfast, lunch, and 2 snacks.

Also, when I file, do I still file jointly with my husband? I normally use Turbo Tax, what do I use to include the business?

Does this mean that I will now be itemizing and NOT taking the standard deduction of about $11,000?

What if my itemizing does not exceed the standard deduction of 11K, does that mean all my receipts and record keeping would be for nothing? Although I am hoping I can certainly deduct more than just 11K.

THANKS!

It's impossible to know how much your deductions are. Everyone's situation is different. You are probably better off filing jointly. If you use Turbo Tax, it will tell you which method is better. If you file jointly you can still itemize your personal deductions on Schedule A. If you don't have enough to itemize you can still claim the standard deduction. But, itemizing is only dealing with the personal portion of property tax, mortgage interest, charitable expenses, medical expenses, etc. Although you can always deduct the business portion of property tax and mortgage interest, the vast majority of your business expenses are claimed on your Schedule C, not Schedule A. Your business receipts will be counted there.

[TomCopeland]

Mother as helper

Also, my mom has just joined me full time as my equal partner. Not my employee. She has been part of the business for the whole year, but is only now going to start to take half of the income we make. How will this change things for next year? How do I prove that although the checks were all written to me and put into my bank account, I did not keep it out because I am withdrawing half and giving it to my mom as her equal pay. I do not want to have to pay any employee type stuff because she's not my employee, we are euqal partners.

And, when we purchase big items over $100, for an easy example, if we bought a $200 item for daycare, we each would pay $100. So does that mean we would deduct the whole $100 item, or it needs to be depreciated because technically it's over $100 item?

Also, should I even be worried about things being exactly exactly correct because the likelyhood of being audited is so so low?

If you pay your mother to do work for your business, she is your employee, not an independent contractor. Therefore, you would have to withhold social security taxes, and pay federal and state unemployment taxes and perhaps purchase workers compensation insurance. There is away around this. If you didn't pay her for her work, then she is not your employee. Instead, treat this as a personal relationship - mother and daughter. Your mother is helping you out by being with the children and you are helping her out by giving her some personal gifts (money or things). If you do this, you can't deduct any of the money you give your mother and she doesn't have to report and of the money she receives as income.
One other option is to set up a formal partnership. If you do so, you'd both need to file partnership tax forms and she would have to pay social security taxes on her income as would you.

[TomCopeland]

Rent

I just thought it was low because in Tom's book he said that in home daycares only have a 2% chance of being audited, or something along those lines.

I also thought that if I paid my mom as an employee, that Tom's book said I would then have to pay benefits or Social Security tax or something like that.

Also, I am not the home owner so I cannot depreciate the house, I also don't really pay utilities exactly. My mom has the mortgage and all the bills in her name. But I pay her a flat rent of $700 including utilities. So I was thinking it wold be pretty simple for me as far as that goes. I could deduct 36% of all my $700s for the year.

We thought about having 3 kids pay me and 3 pay her but it's not that simple. I have several part timers that come opposite of one another and the checks don't work out to be identical amounts.

Since you are paying rent, you can deduct the Time-Space % of the rent as a business expense. You mother must report this as income on Schedule E. She can also claim some house expenses on Schedule E.

[EchoMom]

If you pay your mother to do work for your business, she is your employee, not an independent contractor. Therefore, you would have to withhold social security taxes, and pay federal and state unemployment taxes and perhaps purchase workers compensation insurance. There is away around this. If you didn't pay her for her work, then she is not your employee. Instead, treat this as a personal relationship - mother and daughter. Your mother is helping you out by being with the children and you are helping her out by giving her some personal gifts (money or things). If you do this, you can't deduct any of the money you give your mother and she doesn't have to report and of the money she receives as income.
One other option is to set up a formal partnership. If you do so, you'd both need to file partnership tax forms and she would have to pay social security taxes on her income as would you.

We are equal partners each taking 50% of the money. I do not pay her a wage, she takes exactly half because we are co-founders and co-operators. I do not want to pay her in "gifts" because I don't want to have to claim it all as my income since it is not.

What do you mean formal partnership? How do we do that?

[EchoMom]

And would it be better to avoid all the confusion by just having half the daycare kids write their checks to her and half write them to me? Problem is it doesn't work out exactly 50/50 that way.

[TomCopeland]

Partnership

We are equal partners each taking 50% of the money. I do not pay her a wage, she takes exactly half because we are co-founders and co-operators. I do not want to pay her in "gifts" because I don't want to have to claim it all as my income since it is not.

What do you mean formal partnership? How do we do that?

To set up a partnership you must prepare a partnership agreement that you file with your secretary of state's office. Then you must file partnership tax forms (Form 1065). By doing so you will lose the ability to claim depreciation on your home. The partnership can pay rent to the homeowner and then you as the homeowner would have to report this rent as income on Schedule E.

You cannot do what you are doing (all the money you are getting now is your income). You are not partners according to the IRS unless you set up a partnership with your state and file partnership tax forms. Before you do set up a partnership you should consult with an attorney and tax preparer.

Your simplest option is to hire this person as your employee. I know that's not what you want to hear, but that is the case.

[TomCopeland]

Two separate businesses

And would it be better to avoid all the confusion by just having half the daycare kids write their checks to her and half write them to me? Problem is it doesn't work out exactly 50/50 that way.

This option only works if you have set up two separate businesses. Then, the money paid to each provider would be reported as income by each provider. Each provider would also claim expenses that she paid out of her pocket. But, there are problems with trying to set up two businesses. Your state licensing rules may not allow this. Only one business could be on the Food Program. You would have to keep totally separate business records. Each provider would have to have her own contract with parents. Each provider would need her own business liability insurance policy. The homeowner would have higher expenses associated with her home. The nonhomeowner would probably need to pay the homeowner rent for using her home and property (furniture, appliances, toys, etc.). The parents would have to understand that their child is under the care of only one provider and would not be able to discuss her child with the other provider.

The more you think about this, the more it seems highly unlikely that two providers could operate two businesses out of one location.