As a family child care provider you receive money from a variety of sources: parents, subsidy program, Food Program (CACFP), grants, fundraisers,garage sales, maybe even prizes!
How should all of this money be reported? Is it taxable income or not?
All money you receive from parents to care for their child is taxable income. This includes co-payments they pay for their participation on a child care subsidy program. It also includes any fees included in your contract: registration fees, late fees, field trip fees, late payment fees, bounced check fees, and so on.
If parents participate in a flexible benefit plan (cafeteria plan) at their place of work, any money received through this plan is also taxable income. If a parent gives you a bonus at the end of the year because they had extra money in this plan that they had to spend, it’s also income!
Even a gift from a parent of cash or a gift card (Merry Christmas!) is taxable income. If a parent gives you a gift of anything except cash or a gift card (flowers, book, candy, etc.), it’s not income. Finally!
Some parents may tell you that they won’t report the money that they paid you by not claiming the child care tax credit on their tax return, in exchange for you charging them less for child care. Even in this case, the money you get is income. Don’t agree to such an arrangement because there is no guarantee the parent won’t try to claim this tax credit, and you can get into trouble with the IRS if they compare your income with the number of children you are claiming on the Food Program.
Any money you receive from a child care subsidy program is taxable income.
Reimbursements you receive from the Food Program are taxable income, with one exception. Reimbursements you receive for your own children from the Food Program are not taxable income. You can receive reimbursements for your own children if your family income is below $28,694 for a family of two. For a complete breakdown of all family sizes and for the higher rates for Alaska and Hawaii: http://www.fns.usda.gov/sites/default/files/IEG_Table-032913.pdf.
Grants you may receive to help your business are taxable income. These may include toys, scholarships to attend a conference or take classes, home improvements, fence, etc. When you purchase items with your grant money that are used in your business you can deduct them using the normal rules of business deductions.
For small items this may mean your business expense will be equal to your grant income and you will not owe any additional taxes. If the items are larger and must be depreciated, or if you use the items for your family, then you won’t be able to wipe out all the grant income and you will owe some additional taxes. However, this should not be a reason for you not to accept the grant!
You must report as taxable income and profit you make on fundraisers. For example, let’s say you decide to enlist parents to help you sell candles to buy a swing set. If the cost of the candles is $1,000 and you earn $3,000 in sales, your profit was $2,000 (taxable income). When you purchase the swing set, you can deduct it under the normal rules of business deductions.
You don’t have to report any profit from garage sales. This is because you aren’t selling the items at a profit. The amount you sell something for at a garage sale is less than its purchase price.
If you win a prize (provider of the year, lottery, bingo parlor, etc.) congratulations! However, you must pay taxes on your prize. If the prize was associated with your business you must report it as business income. If you win the lottery or win at the bingo parlor, report this as personal income.
Because of the many different sources of your income, it’s important to keep a careful record of where your money came from. You can do this by writing this down on bank deposit slips, entering it into Minute Menu Kids Pro, or creating your own income report.
Many answers to your business questions can be found at www.tomcopelandblog.com
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