Part 1: Working with a Tax Professional
If you’re reading this book, you’re probably already working with a tax professional or
seriously considering taking that step. If you have been doing your taxes yourself, hiring
a tax professional can feel like a big step. The suggestions in this part of the book will
help you choose the right person and work with her most effectively. You may also be
wondering whether tax preparation software, such as TurboTax or H&R Block at Home,
is a viable alternative to hiring a tax professional. So before discussing how to go about
finding a good tax professional, let’s review the pros and cons of using tax software.
Should You Use Tax Preparation Software?
An increasing number of family child care providers are using tax preparation software
to do their own taxes. These programs can help with math calculations (such as depre-
ciation) and completing your tax forms; they may also help catch some of your mistakes,
but they also have drawbacks. Specifically, tax software will not do the following:
• Identify the items you can deduct for your business. The software will merely list the
category on each line (for example, “Supplies”); it will be up to you to figure out what
you can claim on that line.
• Explain how to deduct items that are used both for business and personal purposes.
You will need to figure out how to claim not only the supplies you use exclusively for
business but also those you use for both business and personal purposes.
• Alert you to all the special rules that apply to your business. For example, it won’t
remind you that the Food Program reimbursements you received for your own chil-
dren are not taxable income.
• Ask you detailed questions to make sure you are reporting the highest Time-Space
percentage and business deductions you are allowed to claim.
Unlike software, a tax professional who is familiar with the special rules for your
business should be able to help you with all of the above issues. Because of these and
other weaknesses (software programs can contain errors), I don’t recommend you use tax
preparation software unless you already have a good understanding of all the tax rules
that apply to family child care businesses. (If you do use tax software, be sure to read
the Record-Keeping Guide to identify all the allowable deductions for your business and
the current Tax Workbook and Organizer to make sure you are following current tax