The Business of Child Care Presented by Tom Copeland, JD For the Association for Better Child Care Copyright 2017 Tom Copeland 1
Welcome! Instructor: Tom Copeland, JD Contact me with questions: 651 -280 -5991 tomcopeland@live. com www. tomcopelandblog. com www. facebook. com/tomcopelandblog Copyright 2017 Tom Copeland 2
Resources www. redleafpress. org Copyright 2017 Tom Copeland 3
Webinar Objectives This webinar will enable you to Establish a business relationship with parents Enforce your contract Pick the right IRA to help you save money for retirement Identify the three key record keeping rules to reduce your taxes Copyright 2017 Tom Copeland 4
Disclaimer “I am not rendering legal tax, or other professional advice. If you require this type of assistance, please consult a professional to represent you. ” Copyright 2017 Tom Copeland 5
Coming to Terms: Contracts & Policies Copyright 2017 Tom Copeland 6
You May Set Own Rules Main benefit of being a child care provider Can run your own business as you want Highly structured vs. informal program Religious vs. non-religious activities Cares for or excludes infants Many field trips, dramatic play everyday, vegetarian food, etc. Copyright 2017 Tom Copeland 7
You Must Set Own Rules As owner of your own business, it is up to you to define your program No classes for parents: “How to Pay your Child Care Provider on Time” Parents are not your “friend” Copyright 2017 Tom Copeland 8
Parents as Clients Many parents have little experience with child care Last generation of parents who were not in child care as children Parents may have difficulty understanding child care as a business Copyright 2017 Tom Copeland 9
Home vs. Center Easier to relate to as a business School for small children Home Harder to understand as a business Doesn’t look like a business, no cashier, no checkout, private home (scary for some parents) Copyright 2017 Tom Copeland 10
You are Running a Business “Why do some parents not treat providers like a business? ” “Because some providers do not act like a business” Hardest sentence to say to parents: “You owe me money” Some providers don’t like acting as a business Need to change personal relationship to business one Copyright 2017 Tom Copeland 11
Parent Enrollment You do not have to accept all parents References Can say “no” for no reason, or any reason (except illegal discrimination) Trial period Copyright 2017 Tom Copeland 12
How to Say “No” “I do not think this is the best place for your child at this time” Do not put reasons in writing Parent may be insulted Illegal discrimination danger Copyright 2017 Tom Copeland 13
Different Rules You can have different rules for different parents Rates Pickup times Other Reasons for different treatment should be logical Age of child, parent longevity, “special circumstances” Copyright 2017 Tom Copeland 14
Illegal Discrimination You can run your business however you want with this exception: It’s illegal to discriminate against parents or children based on: race, color, gender, religion, age, disability, or national origin Copyright 2017 Tom Copeland 15
What is a Contract? Legally enforceable agreement between two parties Terms of time and money are enforceable in court Hours of operation, open/close for holidays, vacations, sick days, etc. Fees for care, terms of payment, other fees Copyright 2017 Tom Copeland 16
Basic Contract Terms Names of all parties to contract Hours of operation Terms of payment Termination procedure Signatures of all parties Copyright 2017 Tom Copeland 17
Two Key Rules To avoid problem of parents owing money when the leave – “Client will pay at least one week in advance” “Client will pay in advance for the last two weeks of care” Copyright 2017 Tom Copeland 18
Pay One Week in Advance Never provide care unless it has already been paid for You have expenses during the week (food, supplies) Payment can be on Monday or on Friday for the next week Parent can pay a little extra per week as a transition Copyright 2017 Tom Copeland 19
Pay Last Two Weeks in Advance Most common contract problem: Parents leave without paying Advance payment covers last two weeks even if rates have gone up Parent can pay a little extra per week as a transition You should offer refund if terminating parent immediately Easier to enforce other rules if paid in advance Copyright 2017 Tom Copeland 20
What are Policies? Rules that spell out “how” care will be provided Policy rules are not enforceable in court Parent does not bring extra change of clothes Provider does not take scheduled field trip Provider policies can be simple or extensive Copyright 2017 Tom Copeland 21
Key Policy Terms Provider information Client responsibilities Child care program description Illness, health, and safety policies Policies for transporting children No requirements for any policies (other than licensing rules) Copyright 2017 Tom Copeland 22
Enforcing Agreements You are always responsible for enforcing your contract and policies You can enforce your rules, renegotiate them, or ignore them If you decide not to enforce a rule you should take it out of your contract or policies Copyright 2017 Tom Copeland 23
Late Pick-Up Parent is regularly late in picking up child Possible consequences: Late fee No late fee if notified by phone within 1 hour 15 minute grace period, then $. 50 minute $1 minute Termination 2 late pick-up in a month, then termination Immediate termination Copyright 2017 Tom Copeland 24
Ending the Contract Reasons for terminating the contract Disruptive behavior Violation of the contract High anxiety Any reason Before terminating, you should ask yourself – “Is there anything the parent could do that would change my mind? ” Copyright 2017 Tom Copeland 25
Termination Procedure “Parent must give a two-week written notice. Payment is due for this notice period even if child is not brought to care. ” “Provider may terminate at will. ” You may give a notice Copyright 2017 Tom Copeland 26
Managing Your Money - IRAs Copyright 2017 Tom Copeland 27
First Step The first step to better manage your money is to gain more control over your spending When our income rises, so does our spending Reducing spending is more important that increasing income Track your spending for a month: fixed vs. flexible expenses Copyright 2017 Tom Copeland 28
Never Too Late to Start $5 a day x 5 days a week = $1, 250 a year 8% for 10 years = $19, 127 $10 a day at age 52 8% a year = $294, 000 by age 70 Copyright 2017 Tom Copeland 29
Set Financial Goals 1) Contribute to employer retirement plan to get employer match 2) Buy adequate insurance 3) Pay off credit card debt 4) Establish a 3 -month emergency fund 5) Establish a car replacement fund 6) Save at least 10% of profit for retirement 7) Save for your child’s college education Copyright 2017 Tom Copeland 30
Plan for the Long Run Do not be overwhelmed by the list Develop a plan for how you will meet your goals over the long run Make some progress each year Do not let short-term spending defeat your goals Review your goals annually Copyright 2017 Tom Copeland 31
What is an IRA? An IRA is a significant tax benefit Your IRA does not earn interest, the fund you put your money in earns interest You then label your investment your IRA An IRA allows you to claim tax benefits for your retirement investment Can defer paying taxes for many years You invest in a stock, bond, or real estate Copyright 2017 Tom Copeland 32
How an IRA Works Make Contribution Can invest in almost anything Tax deduction for investment (except Roth IRA) Investment Earns Interest earned tax free Withdrawal at Retirement (59 ½+) Withdrawal of contribution and interest is taxed (except Roth IRA) Copyright 2017 Tom Copeland 33
Importance of an IRA Significant tax benefit of IRA Invest $5, 000 a year for 20 years earning 8% Outside IRA: $129, 062 after taxes Inside IRA: $164, 743 after taxes Plus additional tax benefit of annual contributions Copyright 2017 Tom Copeland 34
IRA Options - 2017 Regular/Tradit IRA Income eligibility limits (MFJ $119, 000 – if spouse covered by company plan; $196, 000 if not) Maximum contribution: $5, 500 (age 50 + $1, 000) Tax deductible/pay taxes later Roth IRA Income eligibility limits (MFJ $196, 000) Maximum contribution: $5, 500 (age 50 +$1, 000) Not tax deductible/no taxes later Copyright 2017 Tom Copeland 35
IRA Options - 2 SIMPLE IRA No income eligibility limits Maximum contribution: $12, 500 (age 50 + $3, 000) Tax deductible/pay taxes later My. Ra (type of Roth IRA) Eligibility/maximum contribution same as Roth IRA Guaranteed not to lose money/direct deposit www. myra. treasury. gov Copyright 2017 Tom Copeland 36
Savers Credit Tax credit for retirement contribution to any IRA Significant tax break for low income families! Eligibility $62, 000 – married filing jointly; $31, 000 single 10%/20%/50% tax credit Up to $2, 000 contribution person Copyright 2017 Tom Copeland 37
The Basics of Record Keeping Copyright 2017 Tom Copeland 38
Do You Love Record Keeping? Maybe not, but … Keeping good records means big rewards! The better your records, the lower your taxes Copyright 2017 Tom Copeland 39
Good Records = More $ For every $10 of expenses you claim, you’ll save $3 -4 in taxes $100 of business deductions = $30 -$40 of tax savings in your pocket Copyright 2017 Tom Copeland 40
Three-Year Rules Keep all business records for at least 3 years The IRS can audit you back 3 years You can amend your tax return back 3 years Copyright 2017 Tom Copeland 41
Track Income Report money received from: Parents Food Program Subsidy program Grants Copyright 2017 Tom Copeland 42
Track Expenses Receipt Cancelled Check Credit/Debit Card Statement Written Record (created by provider) Photograph Copyright 2017 Tom Copeland 43
Is It Deductible? It is if it’s “ordinary and necessary” for your business You are providing a home environment to help children learn Parents expect you to maintain your home as a home Anything that helps to clean, repair, or maintain your home as a home is “ordinary and necessary” Copyright 2017 Tom Copeland 44
House Deductions Property tax Mortgage interest Utilities House insurance House repairs House depreciation Copyright 2017 Tom Copeland 45
Common Deductions Play Room - toys, rug, DVD player, furniture, books, etc. Outdoors - lawn mower, rake, fence, new house siding, etc. Living Room - curtains, chair, lamp, ceiling fan, piano, etc. Bathroom - towels, soap, toilet paper, rug, bathroom scale, etc. Garage/basement - tools, freezer, garbage can, bicycles, etc Copyright 2017 Tom Copeland 46
How Much is Deductible? Exclusively personal use No deduction Exclusively business use 100% business deduction Shared business and personal use Use Time-Space Percentage Copyright 2017 Tom Copeland 47
The Time-Space Percentage Single most important number to calculate correctly It will be used to determine the business portion of many household items: Property tax, mortgage interest, utilities, house insurance, house repairs, home improvements, house depreciation, rent, furniture, appliances, fence, supplies, toys, television, etc. Copyright 2017 Tom Copeland 48
Time-Space Definition Time Percent How many hours are you using your home for your business? Space Percent How many square feet are you using in your home for business on a regular basis? Copyright 2017 Tom Copeland 49
Business Hours children are present in home From when first child arrives to when last child leaves Hours children not present in home Cleaning, activity preparation, meal preparation, parent interviews/calls, record keeping, Internet activity, etc. Track for 2 months each year Copyright 2017 Tom Copeland 50
Time Percent Rules Cannot count hours away from home Trainings, shopping, trips to library, etc. Cannot count time twice Provider cleaning while business children sleeping Provider need not do the work to count the time Provider’s spouse or own child cleans on weekends Copyright 2017 Tom Copeland 51
Business Space Count all rooms that are regularly used for business Regular use = 2 -3 times per week Can count rooms even if children are not present Laundry room, office, storage room, garage, basement IRS Form 8829 Expenses for Business Use of Your Home Copyright 2017 Tom Copeland 52
When Can I Deduct It? Costs less than $2, 500 Deduct in one year Costs more than $2, 500 Depreciate (claim the deduction over a number of years) Copyright 2017 Tom Copeland 53
New Definition of Repairs Deduct house repairs in 1 year, regardless of the cost Must depreciate home improvements over 39 years New IRS rule says repairs can now include: Replacement of roof shingles or less than 50% of windows or doors New wood/tile floor – less than 50% of entire floor Remodeling of kitchen/bathroom – improvement 3 bathrooms, remodel 1 = home repair Copyright 2017 Tom Copeland 54
50% Bonus Depreciation Rule • Bonus depreciation rule has been extended: 50% bonus for 2017 • Eligible items: furniture, appliances, play equipment, office equipment, fence, driveway, home improvements (not the home) • Items must be purchased new in 2017 • Computers, tvs, dvd players must be used at least 50% for business to use this rule Copyright 2017 Tom Copeland 55
Car Expenses Claim car trips that are “primarily” for business purposes Keep “adequate” records of business trips Receipts, mileage log, cancelled checks, debit/credit cards, written records, calendar notations, photographs Do not need to keep odometer readings Copyright 2017 Tom Copeland 56
Standard Mileage Rate Standard mileage rate 2017 - $. 535 cents per business mile Can also deduct parking, tolls, business portion of loan interest and vehicle property tax Copyright 2017 Tom Copeland 57
Actual Expenses Method Claim business portion of: Gas, oil, repairs, car insurance, parking, tolls, depreciation on the car, car loan interest, etc. Business portion = Business miles Total miles Copyright 2017 Tom Copeland 2, 000/10, 000 = 20% 58
Food Program Join the Food Program! You are always financially better off Reimbursements from the Food Program are taxable income Exception: reimbursements for your own children Copyright 2017 Tom Copeland 59
Standard Meal Allowance Do not need to save food receipts! At end of year, add up all meals and snacks you served and multiply by annual standard meal allowance rate 2017 rate $1. 31 breakfast; $2. 46 lunch/supper; $0. 73 snack 2018 rate $1. 31 breakfast; $2. 46 lunch/supper; $0. 73 snack Copyright 2017 Tom Copeland 60
Standard Meal Rules All providers eligible to use this rule Can claim up to 1 breakfast, 1 lunch, 1 supper, and 3 snacks per day/per child Can never count meals for own children Meals do not have to be nutritious Keep daily record of all meals and snacks served Copyright 2017 Tom Copeland 61
Actual Food Cost Method Estimate your actual food costs Many different methods to use Must keep all food receipts - business and personal Copyright 2017 Tom Copeland 62
Summary Follow these 3 key record keeping rules Save receipts for all house expenses Keep daily records of all meals and snacks served Track all the hours you work in home Particularly when children are not present Good luck! Copyright 2017 Tom Copeland 63
Further Information Instructor: Tom Copeland, JD 651 -280 -5991 tomcopeland@live. com No fee for answering questions www. tomcopelandblog. com www. facebook. com/tomcopelandblog Copyright 2017 Tom Copeland 64
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