The Internal Revenue Service—words that strike fear in many hearts, especially this time of year. Tax time is when you see if you have kept good enough financial records that your tax form preparation isn’t too challenging. Fortunately, the IRS provides a “Technique Guide” for their auditors that can help child care providers understand IRS requirements.
They note that some of the most troublesome tax areas for child care programs include:
- Understated income
- Overstated expenses
- Inadequate record keeping
The issues that the IRS finds that most often need to be adjusted after an audit are:
- Gross receipts
- Food reimbursement
- Food expense
- Business use of home (for Family Child Care Providers)
- Unusually large expenses
- Supplies and miscellaneous expenses
In addition to a personal interview, the auditor may request to see your:
- Income records
- Parent Contracts
- Rate Sheet
- Payment policy (for when child is sick, on vacation, etc.)
- Late child pickup and late fee payment policies
- Transportation fee policy
- Additional fees like a fee for holding a space, diaper charges, registration fee, space rental, etc.
- Parent Sign-in Sheets
- Child emergency contact information
- Permission for emergency medical treatment
- Field trip permission slips
- Annual parent tax statements
- Food service information
- Information on forgivable loans
As for program expenses, the auditor’s main concerns would be the date incurred, the cost, and the business use for each expense.
April 15th doesn’t have to be a big deal, as long as you are maintaining good records. If you see any areas in which you need a little help in record keeping, check out our website. We have a lot of these forms available at a low cost. If you don't find what you need, let us know!