Day care in home

[oceanlovin'ea]

I have a friend that has a small day care/ pre-school in her home. She was asking about trying to make sure she was taking all the deductions that she is allowed to take. I had made a comment about becoming a s corporation might help her.

Then as I was looking over her return from last year and realized that most of her expenses come from the use of her home, I wondered if a day care could be a s corp.

Anyone have any experience with this or know anything about it.

Thanks

Linda F

[S T]

Day Care

Linda,

Seems like your question is more about Child Care in the Personal Home, deductions rather than liability protection.

I don't know alot about whether the day care operating out of the personal home should be an S Corp, I have several small daycares that operate as sole proprietors out their homes. Can the business as an S Corp and the personal home be separated for daycare?

I did find a post that SBA has http://www.sba.gov/library/pubs/mp-29.pdf that might give you some more insight.

I would say probably if the t/p is a rather small operation like most of them that are operating out their homes, probably just sole proprietor and make sure that they have the proper insurance coverage and licensing.

For child care providers there are a multitude of expense deductions. Depending on how many children they are licensed for and the set up of the home, sometimes you can set up the personal home for as much as 50% write off. Then there are improvements interior and exterior, meals, laundry, toys that are purchased, other equipment like TV, DVD, nintendos, etc. The vehicle might be, if she is driving kids to school and picking them up, or going on field trips. All of which of course have to be documented for the child care use.

Off premises of the personal home, might warrant S Corp!

Hopefully someone else can lend some other viewpoints on this.

Sandy

[JG EA]

S Corp Day Care

Probably anything could be an S-Corp. But you would want to consider several factors.

Home would be owned by the individual, so the choices are to take a Sch A Misc 2% deduction for business use of home, or to be reimbursed by the corporation for some but not all of the expenses.

If the Corp paid rent for the home then she couldn't take any rental deductions, so it would be a wash. Expense on 1120S, Income on E.

It would depend on how profitable the day care is going to be to decide what would be best tax wise. Sch C with all the expenses, or a W-2.

And I wonder how much liability protection an S-Corp would give since everything happens in an individual's home.

[Gretel]

Just a response in regards to day care deductions. Don't forget the items, which were used personally and then transferred to business, including toys her own kids use as well as the other kids (if she has children).

A good website for expenses is: www.redleafinstitute.org

[oceanlovin'ea]

Thanks

for the websites. I will definitely give them to her to look at and make sure she is using all the deductions she can.

Your thinking was like mine about the use of the home. I think she should just stay a schedule C. EXCEPT I was talking to one EA at the IRS forum and she said you could be a LLC, electing to be taxed as a S corp and then you would not have all the strict rules that would apply to the S corp.

Linda F

[rosieea]

...EXCEPT I was talking to one EA at the IRS forum and she said you could be a LLC, electing to be taxed as a S corp and then you would not have all the strict rules that would apply to the S corp.

Linda F

I don't think I agree with that. If an LLC elects taxation as an S Corps, it must follow S Corps rules. In for a penny, in for a pound.

[S T]

Llc

Maybe elect for her to be an LLC for the child care business, single member which should still provide her with the liability protection and file a schedule C. If you elect S Corp status I agree with "Rosieea" you are obligated to file as an S Corp on 1120S and meet all of those requirements.

I am not sure about the residence, I don't think you want the residence, if it even could be included, in a S Corp. Then you also have the problem of S Corp, and she needs to set herself up on reasonable payroll so then you have payroll costs. I think you need to take a simple approach. If t/p has not inquired or established, she might want to talk with her insurance agent about some extra liability coverages, not only the residence (liability) but also some other professional liability insurance for child care. Seems to be a pretty high exposure these days.

I have several small child care operating out of their residence, which we are running under Schedule C. Most are licensed (Calif) for no more than about 6 children, then some are licensed for maybe 10-12 children. "Gross Receipts" are somewhere between $20K-$50K. Deductions have not been a problem, nor writing off a portion of the personal residence. Some are on food programs, so they receive a subsidy from the county.

Sandy

[oceanlovin'ea]

Similar

situation. She has 6 children at the most. Gross was $25,000 and net $18,000. Just was looking for ways to save them a little more money on their taxes.

I will get with them this week and show them the websites that were mentioned and maybe there will be something there that will help them.

I don't think the s corp is the way to go here.

Thanks everyone

Linda F

[Bird Legs]

Day Care expenses

Linda, Tax Tools has a worksheet specifically for day care providers. It is very good.
You might want to check that out.

[rosieea]

Isn't liability the biggest issue with this type of business? Regardless of the business form, the deductions are available. A Corporation can have an accountable plan to reimburse expenses; a proprietorship can use the OIH deductions; a partnership can deduct unreimbursed expenses on Sch E (as long as the partnership agreement requires partners to bear such expenses). An LLC can default to proprietorship (single member) or partnership (multi-member), or elect corporate taxation. Most attorneys in my locale would recommend an LLC. But I'm sure any attorney will tell you that there's no substitute for good liability insurance.

[Bird Legs]

Daycare in Home

Recommend Liability Insurance. An LLC would be fine except there could possibly be
some tax paid to the state. In Texas LLCs have to file and pay state corporate franchise tax. Same as a regular corporation.

[ecb34691]

In FL I think it's $50 annual fee for LLC renewal. Linda go to Fl Division of Corporations website to check.

[Gretel]

I don't think I agree with that. If an LLC elects taxation as an S Corps, it must follow S Corps rules. In for a penny, in for a pound.

Agree and disagree. As far as taxation goes, yes, you have to follow all S-Corp. rules. As far as state law goes, you follow LLC rules, which don't require as much paperwork as Corps do.

[rosieea]

Agree and disagree. As far as taxation goes, yes, you have to follow all S-Corp. rules. As far as state law goes, you follow LLC rules, which don't require as much paperwork as Corps do.

I'm not sure about "less paperwork." That likely varies from state to state. But, yes, the LLC is a state animal.