The paperwork part of a business is often a challenge, but does not have to be overwhelming if you plan ahead. Adopt a record keeping system from the beginning that is easy and quick, and that will provide the facts that you need. Many new business owners report that they hire professionals to initially help set up their bookkeeping, and then prepare the IRS forms when they are due. You may find this small investment saves money in the long run.

Organize your records with your taxes in mind. Complete, accurate, and ongoing records are a must to a smooth business operation and to peace of mind. The law requires that you keep your business records and receipts for three years from the date you file your tax return.

    As you begin, select a form and method of record keeping that is comfortable for you to use. One method is called *Calendar-Keeper* (by Red Leaf Press). This is a commercially developed system for family child care providers based on the use of a calendar. It includes forms for recording expenses, attendance, payments, and mileage. The idea is to keep all related business information in one place. I created a spreadsheet on Claris Works on my computer to figure the hours and weekly totals for each family.  I did the same for my exspenditures.

Tax records are serious business. Most of the income you receive from your child care business will show up on other people's tax returns. Parents use these figures to determine their allowable child care credits. This may make your income very visible to the Internal Revenue Service - more so than other types of income. Therefore, you should be very careful to report all receipts from your business. Accurate records are vitally important.

You must keep records on all aspects of your business in case you ever have an IRS audit. Remember to keep information on the following:

FOOD PURCHASES. To justify food expenses, the IRS may look at grocery receipts, copies of menus, and children's attendance records.

AUTOMOBILE EXPENSES. Written evidence of business related travel should include the date, destination, reason for the trip, odometer readings at start and stop of each trip, and miles driven. Check on the current rate for IRS mileage deduction then multiply by the number of child care business miles driven for the year.

DIRECT AND INDIRECT EXPENSES. Provide receipts and copies of bills of all related costs. Items you purchase for the operation of your business can be depreciated on your taxes. These items may include a swing set or refrigerator, trees for shade, a pet (and his food) for the kids. To figure depreciation, check with the IRS to see whether they consider the item three-year, five-year, or 10-year property. The tax deductions will be calculated over a period of years for both direct and indirect expenses.

For more information, contact the Internal Revenue Service or pick up the following tax forms and publications at your local library. Toll-free telephone numbers are in your telephone directory.
 

1040 Basic Personal Tax Return Form

1040C Profit or Loss From Business

1040ES Estimated Tax

1040SE Social Security Self-Employment Tax, Dependent Care Providers, Identification and Certification

4562 Depreciation and Amortization

2441 Child and Dependent Care Expenses

8829 Business Use of Home
 

#334 Tax Guide for Small Business

#587 Business Use of Your Home

#534 Depreciation

#533 Self-Employment Tax

#583 Taxpayers Starting a Business

#917 Business Use of a Car