Hello. Welcome. My name is Tom Copeland. I’m a trainer, author, advocate attorney working on helping you be more successful as a business. For this video, we're going to talk about how to find and choose a tax preparer. It's extremely important obviously that you're filing an accurate tax return. You work very hard for your money and you don't want to pay any more taxes than you must. Unfortunately, in my experience, many providers pay too much in taxes and this is true even when providers use a professional tax preparer, so this is a problem. Why is it so hard to find a qualified tax professional? First, there are many unique tax rules that affect your business.
The time and space percent that determines how much of your house expenses you can deduct. The food program and how you deduct food expenses. Your ability to deduct practically all house related expenses. These are rules that are different for every other home-based business and unfortunately, too many tax preparers are not aware of these unique rules. Also, most tax preparers may only have one or two family child care clients and therefore, don't realize these unique rules. Failure to understand these rules, however, means that too many providers are paying too much in taxes. Well, how do we find professional tax help? I wish there was some simple answer I
could give you but there really isn't.
I would start by talking to other providers near you. Ask them if they're using a tax professional and if they do, are they satisfied? Do they think that person is doing a good job? Because people who are doing taxes for family child care providers are more likely hopefully to understand your business. Not necessarily, but that's a place to start. Next, of all the credentials that a tax
professional might have, an enrolled agent, an EA, is someone who is more likely to understand your business.
That's because that person has passed a test by the IRS and has experience working with small businesses. So that can help more likely to understand your business to find an enrolled agent in your area. Here's the link for the National Organization of Enrolled Agents and you look for one in your state, in your area. Another national organization is called the National Association of Tax Professionals. That member of that organization, tax preparer also may be more likely to understand your business. Now you're talking to a tax person.
How do we know that that person understands your business well? Here are some key questions to ask because if your tax person can't understand these correctly, can't answer them correctly. That's a problem. So first, should I depreciate my home? The answer is always yes. Always yes. There's no reason for a tax person to answer anything different than absolutely because if you don't, that will hurt you when you sell your home. Next, may I count all the hours I spend
in my home on business activities when children are not present? The answer is yes.
There's no limit on how many hours you can count working in your home when kids are not present. Cleaning, activity preparation, and so on. May I deduct items in my home that I owned before my business began? Furniture, appliances, pictures on the wall, lamps, rugs, and so on. The answer is yes. That's one of these unique rules. May I deduct meals and snacks that are not reimbursed by the food program? Yes, yes. May I have both an exclusive use room and regular use rooms when calculating my time-space percent? An exclusive use room is a room that you never ever use personally. Regular use rooms are commonly the rooms that you're using two or three times a week for some kind of business activity.
And it's possible you might have both types of rooms. Now here's a key question. You're entitled to deduct dozens of house related expenses on your tax return and some of these expenses may be exclusively used for your business. Toys, baby wipes, when your kids are in college and so on. Never use personally. You're entitled to deduct all of that. You also may have some items that are used by both your business and your family household. Cleaning supplies, office expenses, a lawnmower, furniture and so on. This is more common that you would have lots of these kinds of expenses. All right, so if you're working with a tax preparer, your taxpayer at the end of the year should not be saying to you how much did you spend on supplies. Instead, he or she should be asking how many of your supplies were exclusively used for your business and how many were both business and personal use. See, if you answer the question how much you spend on supplies you might say well here are some supplies that are exclusive, here's some supplies that are shared and you add them together and you say, okay here's a total amount I spent on supplies without making the
distinction between these two categories.
And that's the problem. You might need to make sure your tax preparer understands the difference between some items you have that are strictly business and some items that are shared. This is a key concept and if a tax preparer
doesn't get that, that is a major problem. What other questions might you ask? Ask the person what kind of ongoing tax training do they take to keep up with the changes in tax rules because tax rules change every year. How many other family child care clients do you have? The more, the merrier, I think because hopefully the more experience they have, the more they understand your business. What do you charge? Ask about all fees up- front. Are you available all year or only during tax season? You want somebody who's around all year so that you can ask questions. Can you give me some references to other family child care clients? So, you can find out whether those other folks are satisfied with this tax person. And lastly, you want to feel comfortable working with a tax preparer.
So, is he or she easy to contact? Can he get through to them and are they easy to talk to? Do you understand what they're saying? Once you've chosen a tax person, here are some additional tips you want to follow. When you get a copy of your tax return and before you sign it, make sure you know where the numbers on the return come from. If it says “supplies: a thousand dollars” you need to know where that number came from and if you have your own records that show supplies – okay fine – do they match what's on the tax return? Sometimes tax preparers will lump different categories of expenses together. That's okay. It doesn't matter really where
a number appears on a tax return but you need to know where those numbers come from because you're responsible for what's on the tax return. If that tax person is not around next year, if you get audited two years from now and you can't find that person and you don't know where these numbers come from, now you're in trouble.
If you don't understand what your tax person is doing and why they determined how these numbers were right, that that's a problem. So, make sure you ask questions. Why did you do this? Why did you do that? If you disagree with your tax person, say “where does it say what you're telling me?” You're saying I can't deduct this. Well, where does it say that? You're saying I have to depreciate it when I don't think I have to.
Where does it say what you're telling me? You want to see something in writing from the IRS that supports what the tax person is saying. If they can't show you that, then you might say “well wait a minute now. This is a problem.” Ask them to talk to the IRS, ask them to do more research. Usually, a disagreement with a tax person is over the question of whether or not an item is ordinary and necessary in your business and therefore, allowed to be deducted. And some tax people will think, well you can't claim the household cleaning supplies or the pictures on the wall because that's not ordinary and necessary. Well in your business, it is. So again, tell me
where it says I can't do that in my business. Now if you think you're right, you can deduct household cleaning supplies and pictures on the wall and your tax preparer is wrong and that taxpayer can't show you something from the IRS and the tax preparer is saying nope I’m not going to do that, then I think you should move on and find another tax preparer, rather than allowing a lot of your deductions not to be counted.
If you're working with a new tax person, I think it's always a good idea to have that person review your last two or three years of tax returns. A good tax preparer who's starting out with a new client will usually ask for that so they can see what you've done in the past and they can amend your return if mistakes were made. You could go back up to three years to amend your return using what's called Form 1040X. Amending your return will not increase your chances of being Audited. Now if you didn't depreciate your home or home improvements in previous years further back than three years, you can
file another Form 3115 and recapture all previously unclaimed depreciation. You haven't depreciated your home for 10 years, you can get all that depreciation deductions by filing this form and tax people need to understand that. Another question. Well should you use online tax software? TurboTax, HR Block, Tax Act. I don't recommend using them unless you can first know what business deductions you can claim.
You need to know that you can deduct the household cleaning supplies and the pictures on the wall. The software will not tell you what you can deduct. It'll just say supplies and you need to know what supplies. Next you need to know how much you can do that. Again, tax software will say “supplies.” It won't say to you, well how much exclusive 100 supplies do you have? How many shared supplies do you have? No, you would need to do that on a separate piece of paper and put the total into the software. And they won't tell you that. Number three, you need to know where the expenses go on the tax return because the software makes it very difficult to match your numbers. Okay I came up with my numbers and where did they come, where do they go and you print out the tax return and you can't tell and that's a problem.
Lastly, all these software programs make it extremely difficult for you to calculate your time and space percent accurately. They just don't do a good job of dealing with counting the hours. When kids are not there, counting exclusive use rooms, regular used rooms. They just make it very very hard so I really don't recommend it unless you really really know what you're doing.
That's what I want to say. I wish I could tell you that most tax preparers understand the unique tax rules affecting your business but unfortunately, too often they don't. And wow this is just an ongoing problem that I don't have a simple answer for. You may want to try to do your own taxes. I've written an annual book, a Family Child Care Tax Workbook and Organizer that takes you through each form line by line to help you do it yourself. Use the questions that I’ve indicated in this video to help you pick the right tax person and make sure they understand some of the basics of your business and in doing that, you may need to educate your tax preparer about your business. If your tax preparer is willing to listen to you, then that's a good sign. There's some additional resources. I've written a lot about IRS documents that you can refer to help support your case, that things are deductible and share with your tax person.
It's on my website. I've written an article in more detail about finding and using a tax preparer, also on my website. And here's a link to my annual Family Child Care Tax Workbook and Organizer. If you have questions after listening
to this, I’m happy to try to answer them. Here's my email address. I don't charge anything for answering questions. Here's my website, general link to my website, where you can find a lot more information about record-keeping, taxes, IRS documents, working with tax preparers. So good luck. Now, I’m not preparing your taxes. I’m not offering you professional advice, so you need to seek that out. And lastly, this video was funded by the Child Care Communications Management Center, which is funded by the Office of Child Care, the Administration for Children and Families, the U.S Department of Health and Human Services and was developed in partnership with the National Center on Early Childhood Quality Assurance, which is funded by OCC, the Office of Head Start, ACF, HHS.
This video may be duplicated for non-commercial uses without permission. Thanks very much for listening..