6 Family Child Care Tax Workbook and Organizer
A Few Other Issues before We Get Started
What If You Aren’t Licensed or Certified?
For tax purposes, you don’t need to have a business name, be registered with your state
or Chamber of Commerce, or even meet the requirements of your local regulations in
order to be considered a business. Your child care business begins when you are ready
to care for children and are advertising that you are ready to accept children. At this point
you can begin claiming all “ordinary and necessary” expenses for your business. You
don’t have to be licensed or actually caring for children in order to be considered
a business and start claiming your expenses.
Suppose that you’re paid to care for children but don’t meet the requirements of your
local regulations. You may still deduct many expenses as business deductions, as long as
you report your income. You can deduct all direct expenses, such as car expenses, depre
ciation on personal property (such as furniture and appliances), office expenses, equip
ment rental, repairs, supplies, education, food, and other miscellaneous home expenses.
You may deduct these expenses even if you are caring for more children than your local
regulations allow. Although we don’t recommend operating outside of your local regula
tions, you should be aware of the tax advantages of deducting these expenses from your
business income on Schedule C.
The only expenses that you aren’t entitled to deduct if you don’t meet your local
requirements are your home utilities, mortgage interest, home repairs, homeowners
insurance, home depreciation, and real estate taxes. (These expenses appear on Form
8829. If you aren’t entitled to claim expenses on Form 8829, you can still deduct all
your mortgage interest and real estate taxes by itemizing on Schedule A.)
If your local regulations are voluntary, or if you are exempt from them, you may
claim all the same business deductions as a licensed or certified provider. For example,
your state rules may require that child care providers be licensed only if they care for
more than four children. If you care for three children, you would be exempt from the
licensing rules and thus would be able to deduct the same business expenses as a licensed
provider. Do You Need an Employer Identification Number?
If parents want to claim the child care tax credit, they will ask you for your Social
Security or employer identification number (EIN). Because of privacy concerns, I
strongly recommend that you get an EIN for your business. Using an EIN can reduce the
chances that your Social Security number will get into the wrong hands and cause you
problems with identity theft. If you hire an employee or set up a Keogh retirement plan,
you are required to have an EIN. You can get an EIN by filing Form SS-4 (go to www
.tomcopelandblog.com and click on “2013 IRS Tax Forms” to download the form) or by
calling the IRS Business and Specialty Tax Line at 800-829-4933.