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 dont 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 doesnt 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 separateHaving 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 youll 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 its 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.