IRS Tax Audit Manual for the Child Care Providers Industry
Who Will Look After The Children when Uncle Sam Is Auditing You?
Why Child Care Providers?
- Income and expenses are often paid in cash.
- Record keeping is often inadequate.
- A net loss is unusual, except at the corporate level.
- Often receive reimbursements from government agencies.
Each of the categories below has unique tax consequences. Learn the specific requirements when you order IRS Tax Audit Manual for Child Care Providers.
How The Internal Revenue Service Defines the Four Basic Categories of Child Care Providers?
Babysitters: These providers generally care for children from one family and are not under regulatory control. In some instances, the provider will be a spouse caring for his/her own children and also taking care of one or two additional children for the extra income. Others can be grandparents or other relatives, friends, or neighbors who are either unemployed and welcome the extra money, or are not paid but are willing to look after the children. In these cases, Form 2441 information is possibly incomplete or incorrect. These providers often believe that this income is not taxable and therefore, need not be reported. However, this could result in both income and self-employment tax issues.
Family Day Care: Family Day Care is child care provided in the home of the provider, is non-medical and is for less than 24 hours. In some states a provider must attend an orientation and/or complete an application-processing seminar to obtain a license. Regulatory requirements may differ from state to state. The provider might be approved, certified, registered, or licensed under applicable state and/or local laws.
Child Care Centers: Many child care centers are organized as corporations filing Forms 1120 or 1120S or partnerships filing Form 1065. These are usually separate facilities, apart from the owner’s residence. There may be one or more shareholders or partners involved in several facilities, each of which is organized as a separate corporation. These centers are heavily regulated in most states and are required to report attendance and maintain various types of records. They also have large commercial kitchen operations, playground equipment, swimming pools, and large quantities of toys.
Home Care: Some children are cared for in their own home by a paid housekeeper, maid, governess, au pair, or nanny. The home caregiver is generally paid as a household employee. The parents show the wages on Schedule H attached to their Form 1040. This situation is not a child care provider business. The nanny, housekeeper, etc. receive wages but do not incur expenses as a child care provider.
Others: There may be other types of child care providers such as after-school programs, church programs, or other tax-exempt entities. These types of child-care programs are not often a target for an IRS audit.
Regardless of the type of child care you are providing, the Internal Revenue Service tax auditor will examine your records to obtain answers in the following areas:
- Other Income
- Start-Up Costs
- Car and Truck Expense
- Commissions and Fees
- Employee Benefit Program/Pension and Profit Sharing
- Telephone Expenses
- Travel, Meals, Entertainment
- Bad Debts
- Other Expenses
- Business Use of Home
To learn exactly what questions will be asked AND the answers the IRS Auditor will be looking for – Download your copy of IRS Tax Audit Manual for Child Care Providers Industry NOW!
TABLE OF CONTENTS
- Market Segment Definition and Overview 1
- Purpose 1
- Definition 1
- Status 2
- Resources 3
- Issues 4
- Income 4
- Other Income 7
- Expenses 7
- Start-up Costs 7
- Advertising 8
- Car and Truck Expense 8
- Commissions and Fees 9
- Depreciation 9
- Employee Benefit Program/Pension and Profit Sharing 9
- Insurance 10
- Rent 10
- Telephone Expense 10
- Supplies 10
- Travel, Meals, Entertainment 10
- Utilities 10
- Bad Debts 11
- Wages/Compensation 11
- Other Expenses 11
- Business Use of Home 12
- Examination Techniques 16
- Business Use of Home 16
- Sample IDR 17
- Child Care Credit 18
- Employee Versus Independent Contractor 18