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DOUBLE TAP TO ZOOM WITH PHONE OR TABLET Family Child Care Record-Keeping Guide person provides services to another person in exchange for something, a taxable transaction has occurred, and both parties must report the value of the service that they received as income or expense, even if no money was exchanged. How would you determine the value of the ser- vices exchanged? You would probably look at what you normally charge for such care. Let’s say that you and a parent agree that the parent will help you care for the children in your care for one day a week in exchange for free child care for her three children for that day. If the amount that you would normally charge for a day of care for three children is $100, the value of the care would be $100, and you should report this amount as tax- able income on your tax return, even though you never received any cash. You would also count the $100 that you “paid” the parent as a business expense on your Schedule C, under “Wages.” Since the parent is working under your direction and control when helping you care for children, the parent is considered your employee, and this payment would be subject to any federal and state payroll withholding taxes. In addition, you may need to purchase workers’ compensation insurance to cover the parent if she becomes injured while work- ing for you. (For a fuller explanation, see chapter 8.) Finally, the parent would also have to report the $100 that she “received” as income on her tax return. You don’t have to report as income any services you receive that are given to you without the expectation that something will be offered in return. This is not considered a bartering arrangement, but a gift. So, if a parent volunteers to help you care for children one day a month, this is a gift and is not subject to the bartering rules. Note: Whenever a parent (or anyone else) helps you care for children (whether as a paid helper or volunteer), make sure you are following all of your state child care regulations regarding background checks and any training that this person may need to have before being allowed to work with the children in your care. Increasing Your Income There are basically four ways that you can increase your income in a family child care business: care for more children, raise your rates, increase your fees, or lower your taxes. Caring for more children and raising rates and fees may be difficult. (For more information about how to set your rates and attract more parents to your program, see the Family Child Care Marketing Guide. For more information about increasing your income, see the Family Child Care Money Management and Retirement Guide. Both books are available from Redleaf Press.) Here are some tips to lower your taxes, especially if you are an experienced provider who has been in business for a number of years: • Open an IRA to build up your retirement fund. The contributions to any IRA and the interest earned on this investment are not subject to income taxes until you withdraw the funds when you retire. Exception: contributions to a Roth IRA are not tax deductible. • Hire your spouse or children to work for your business and set up a health reimburse- ment arrangement (previously known as a medical reimbursement plan) in which you can deduct 100% of your family’s uninsured medical expenses as a business deduction. See pages 161–63. 18 COPYRIGHTED MATERIAL