Owning a Daycare With Two Owners

[craftymissbeth]

My sister owns a daycare in the town we live in and I am about to open mine. We have been talking and would like to essentially combine our businesses into one and operate outside of my home.

We already looked into licensing and have that part figured out...

But my question is how do we handle the financial aspect of owning a business together? Do we file as an LLC? And if so, how do we pay ourselves? Do my home expenses still count towards T/S% deductions? Do we still get to use the T/S%?

We are just very confused about how we handle this. Thanks in advance!

[craftymissbeth]

And how do we file taxes next year?

[TomCopeland]

Two working together

My sister owns a daycare in the town we live in and I am about to open mine. We have been talking and would like to essentially combine our businesses into one and operate outside of my home.

We already looked into licensing and have that part figured out...

But my question is how do we handle the financial aspect of owning a business together? Do we file as an LLC? And if so, how do we pay ourselves? Do my home expenses still count towards T/S% deductions? Do we still get to use the T/S%?

We are just very confused about how we handle this. Thanks in advance!

This is a complicated issue. You have several options:
1) You are the owner and hire your sister as your employee
2) Form a partnership
3) Form a corporation (LLC, S, or C corp)

In my opinion, the best option is #1. It's the simplest way to go.
If you form a partnership you lose some of your house deductions and pay more in taxes. Plus, you must keep business and personal records completely separate.
If you form an LLC your taxes will be the same as #1. But you must keep your business and personal records completely separate.
If you form an S or C corp you will lose some house deductions and the record keeping is even more complex.
I've written a lot about this on my blog and in my book Family Child Care Legal & Insurance Guide.

[craftymissbeth]

Thank you so much! I guess we're going to have to go with option number 1... I just didn't want to pay taxes associated with having an employee.

[craftymissbeth]

Another question... Sorry to be a bother...

If we instead change things a bit and instead of her closing her business and combining with me, could we leave things as they are and she could become a self-employed contractor?

If she were to decide to offer certain services to me and I wasn't her boss and she offered services to other daycares (such as substitute services) would that work?

I'll be honest I don't want to pay taxes associated with having an employee, but thats not the entire reason I would prefer not to do it that way. Really, I just don't want her to be my employee period even if it is just in a technical way, KWIM?


ETA: I'm going to check out your blog, Tom. Thank you!

[TomCopeland]

2 businesses

Another question... Sorry to be a bother...

If we instead change things a bit and instead of her closing her business and combining with me, could we leave things as they are and she could become a self-employed contractor?

If she were to decide to offer certain services to me and I wasn't her boss and she offered services to other daycares (such as substitute services) would that work?

I'll be honest I don't want to pay taxes associated with having an employee, but thats not the entire reason I would prefer not to do it that way. Really, I just don't want her to be my employee period even if it is just in a technical way, KWIM?


ETA: I'm going to check out your blog, Tom. Thank you!

If she is doing child care in her home and you are doing child care in your home, then you are both self-employed. If she started doing substitute care for your business (by working in your home) then she might be considered an independent contractor (not your employee) if she did the following: establish a business name, register the name with your state, work as a substitute for more than one provider, and use her own contract.

[craftymissbeth]

Ok, thanks!

[SunnyDay]

My mom and I operate our daycare from my home and we have an LLC. We are the two owners. We also have an accountant that sorts everything out for us, thank goodness If you have any specific questions, though, I could try to answer them.