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Sole proprietor, Inc, LLC, - What does it all Mean? Your childcare is a
business. While you may not need to formally create a legal business, there are
options to consider if you have an especially large operation, or employ more
than one person. From a legal standpoint, different types of entities provide
limited liability. This is something you would want to discuss with a lawyer.
Different entities also provide different tax advantages and disadvantages. The
type of entity really depends on the business and how many people own the
business. An accountant should be able to advise you on the best entity for your
situation. What can you deduct on your taxes? Any why would you want to? Each
time you claim something as a deduction on your taxes, you reduce the amount of
money the government can tax. By reducing that amount, you can reduce how much
tax you pay, letting you keep more of your money.
A simple rule of thumb to remember is any ordinary and necessary business
expense is deductible. Keep in close contact with your accountant, and find one
if you don't have one. Regular meetings or discussions with the accountant will
help in working through what is considered ordinary and necessary for your
business. Be sure to keep in mind all the expenses you incur when doing business
- ie., don't forget things such as mileage on your vehicle. Trips to the bank to
deposit your weekly daycare income, for instance, is an ordinary and necessary
business expense that is deductible.
Who has time to file receipts after a day with the kids? Even though resting
from your busy day sounds better than filing you receipts for groceries that
week, stay on top of your paperwork and make sure you keep records of all the
money you spend on your business. From the IRS point of view, the more records
and documents to substantiate your position, the better. Invoices, receipts,
credit card statements, bank statements and cancelled checks are all good
evidence of the expenditures incurred. There are also several accounting
programs - available at any store that sells computer software - that are
inexpensive and work great for tracking expenses and providing useful financial
reports. Several online companies sell software specifically for childcare
providers. Be sure to set up a filing system for your records. It doesn't need
to be fancy, as long as it makes sense to you and you can find your records once
tax time comes around. Keep work and personal expenses separate Having a
separate checking and savings account for your business will make keeping track
of your finances a lot easier. Sure, you have to balance another checkbook, but
you'll know that all money in and out of those accounts has to do with your
business. Also, consider getting separate credit cards for the business. When
you use all of these accounts exclusively for business, it is much easier to put
all your records together, rather than trying to separate out what is business
and what is personal. Ahh, taxes. Where do we start? Tax laws are so specific to
your state and city, that it's hard to give even general guidelines. You may
want to check with a local accountant or state and local tax authority to find
out if there are any special rules, permits or taxes that you may need to run
your business. Paying your taxes quarterly might be an option, so you can spread
the payment out over the year instead of paying it all at one time.
About the Author
Melissa Newby is the cofounder of
www.daycarematch.com
Bob Sawicki is a CPA practicing Tax and Financial Planning in Madison WI. He can
be reached at sawicki@tds.net.
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