Ask Civitas: November 2024 Reader Questions Answered!

You have questions, we have answers! Since taking over Tom Copeland’s blog, we’ve heard from a lot of you who have questions about the business of family child care. Here’s a roundup of the latest questions we’ve received from all of you, via the Ask the Experts page.

Can’t watch the video? Here’s a transcript:

Question: it correct that if I track the hours I spend after hours on tasks like cleaning, bookkeeping, planning for January, February, and March, I can then average those hours for the remaining months of the year I run an in-home daycare.

Answer: This particular provider is referring to calculating the amount of hours that they use for their business so that they may calculate the time-space calculation.

That's why they're asking how many hours, can they basically take an average of hours for the time spent outside of the business and use that per month for their time-space calculation, and the answer is yes. However, it may not be as accurate as tracking the actual hours spent outside of the business on a monthly basis. You will want to keep documentation, even if you're doing the average of what the tasks were and how long they took, should the IRS ever ask for that. You will need to use that average for the entire year so you cannot come up with an average and then a month later do the actual. Consistency is key when it comes to something of this nature so, just keep in mind, you may find that the average perhaps in January, February, and March is lower than what the actual hours would have been if you added up each individual month for each individual task. You may want to do a comparison, see what would work to your best advantage, but yes, you can do that.

Question: We have several questions regarding this. Basically, child care providers looking for properly educated tax preparers, and we will say that it is a struggle for child care providers across the United States to find qualified tax preparers who understand family child care as well as child care centers, so it is a challenge.

Answer: Our recommendations are that you reach out to your community, finding if anyone who owns a child care business has found a qualified tax preparer, someone that they feel comfortable with, that they feel very confident are properly preparing their taxes. You also could reach out to any state resources that you have, any state organizations that work with child care to see if they have a list of tax preparers, or you could reach out to CCR&Rs in your area and see if they have a list of tax preparers.

Unfortunately, Civitas Strategies does not. Please be sure to do your due diligence, ask a lot of questions, make yourself aware of the time-space calculation and all of the allowable expenses that you may take. You can find information on time-space as well as the allowable expenses that you may take by visiting our website, civstrat.com. You'll see a banner at the top of the page that has tax resources. You can click on that and find out more about time-space and allowable expenses, or feel free to please go to our Civitas Strategies YouTube Channel and search the term for the information that you're looking for. We have many videos on our YouTube channel that could apply so that you can be prepared when you have a conversation with a qualified tax preparer.

We did have a couple of questions about are there any upcoming English and Spanish basic tax preparation trainings, workshops, and things of that nature. Civitas does not have any free tax preparation trainings or workshops available to the public. We do suggest that you reach out to your local agency or organization that supports child care to see if they are going to be sponsoring any type of tax webinar or tax presentation. You can find recordings of our previous tax presentations at our YouTube channel, Civitas Strategies, and search for tax preparation. You will find a lot of webinars and presentations with current information, so I really would stress looking at those there.

Question:  I'm getting ready to purchase a home. My child care business deductions prevent me from showing enough income to qualify for a home, even after what can be added back in. Can I take less deductions in the next year to show more income and then amend my tax return for deductions within three years? I do not want to trigger an audit and would like to be a homeowner.

Answer: So very, very common situation for child care providers and definitely a situation in which you will want professional tax advice. We will tell you that we have found that often smaller lending institutions and credit unions are more likely to offer mortgages because they will, at times, accept other forms of financial records in addition to your schedule.

You may want to reach out to some of these smaller lending organizations to see if there are other financial documents that they will take into consideration when considering you for a mortgage, but you also really should speak with a tax preparer regarding a strategy of not declaring expenses and then amending taxes after you've obtained a mortgage, so please do speak to a tax preparer about that very, very common problem here.

Question:  I was told I can deduct 7.5% of costs related to self-care such as chiropractic care, massages, other therapeutic visits. This deduction would come after medical deductions. Could you shed some light on this?

Answer: This is also a question for a tax professional. They need to address your particular situation. Unfortunately, we don't have any further details on that.

Question: we have two related questions. One is, I'm currently in the process of going through homeowners' insurance claim for storm damage. I'm wondering if these repairs to my home are able to be deducted or depreciated. We had a window replaced, which we paid for out-of-pocket, roofing and siding. And then, the second question is, we've been putting off getting a new furnace and air conditioner and are looking to get new ones. Would this be a business deduction counted as time-space or would this fall into any other categories such as being a big expense? So these are two related questions.

Answer: Keep in mind, repairs to your home may be deductible using the time-space calculation but in some instances depreciation may need to apply if the changes are considered to be upgrades or improvements and not just repairs. Given that first example, it does sound like these are repairs that would be deductible using time-space if the space in which those repairs occurred were shared between your business and your home use of your home there, so your business and personal use of home.

The second question, it sounds like these may be considered improvements, which could be subject to depreciation, although you still apply time-space to such an expense improvement that you would be depreciating there. You will want to make sure that your time-space calculation is absolutely correct and then visit with a tax professional to help complete the calculations for either the allowable expenses for repairs or to help you depreciate improvements.

Question: We have two questions that are related to beneficial ownership information, the BOI. Before I answer the questions, I do want to let you know that as of November 2024 there has been a pause in the requirement for BOI filing. However, that pause could be lifted at any time. Prior to November of 2024, anywhere from January 1st to November of 2024, businesses that are LLCs or corporations were required to file BOI. That could be re-instituted at any time so you will want to actually go to the FINCEN website for updates on BOI. Let's look at these two questions as if BOI were still in place. This is a small family child care without employees. I am not an LLC. I am not incorporated. Do I need to file BOI?

Answer: No, a sole proprietorship would not need to file BOI. However, if they were a single member LLC they would need to file BOI if BOI is, in fact, reinstated.

Question: The second question that we had is that this particular provider is concerned about. They received a letter regarding BOI.

Answer: If your business is a LLC corporation, S corporation, C corporation, most likely prior to November of 2024 when the BOI requirement was in effect, yes, you would need to report. It is extremely, extremely easy to do so. However, in November of 2024 there was a pause instituted on having to file BOI. I can tell you that for individual businesses filing BOI often takes less than 10 minutes, 10 to 15 minutes, it's extremely easy. My recommendation, if you'd like to learn more about BOI, is to go to the Civitas Strategies YouTube Channel and search beneficial ownership information. We did record a presentation, a webinar on BOI at the beginning of 2024 and we have it posted there on our website. It covers the process of reporting BOI from start to finish, the qualifications and such. You'll want to review that in case the BOI requirement is reinstated. So want to keep it there.

Question: We have an individual who did go into detail about situations in Ohio regarding exit interviews and different types of requirements for their employees if employment changes. They have many, many different questions.

Answer: The reality is, is that that is really a question for a legal professional who specializes in employment law for businesses as the employer. Really, we can't tell you if it is legal for them to require you to complete the exit survey so I do apologize. Our recommendation is that you please seek some legal counsel there.

Question: We have somebody asking if we have a budget template that can be used for providers.

Answer: If you go to civstrat.com and look for resources you will find budget templates and other information on budgeting, cash flow and such, so please by all means refer to the resources on our website.

Question: This is a business consultant for an Oklahoma child care resource and referral who will be speaking to child care providers regarding tax preparation. They're asking, what is really relevant? What topics would their providers like to hear about that would make tax preparation easier?

Answer: Again, my recommendation is to go to the Civitas Strategies YouTube Channel, just search for tax preparation and you will see webinars that we have presented in the past on tax preparation. But also keep in mind that when it comes to taxes our providers often look for information on understanding allowable deductions and expenses, understanding the schedule C, understanding the 8829 business use of home, how to do the time-space calculation, and when it's applied how to calculate food and transportation expenses, and how grant timing affects taxes. You will find many videos on the Civitas Strategies YouTube Channel that pertain to those particular topics.

That wraps up our September 2024 questions from the Tom Copeland blog's Ask the Experts! Remember, with over 1,500 resources available at TomCopelandBlog.com, many of your questions may already be answered within those guides and articles! Don’t forget to also check out the Civitas Strategies YouTube channel, where you'll find over 600 helpful videos to guide you.

Thanks for all of your questions. We will be back next month with more answers for you, so keep sending your questions in!