The key to record keeping is to simplify, simplify, simplify. As with any other repetitive task you want to make it as easy as possible so the main goal is achieved. This information will give you some insight.
The end result of keeping accurate records is two-fold. Sometimes we get all caught up in defending against problems with the IRS and tax return preparation and that we forget the purpose of record keeping. We should be using the information from the records to advance our business and allow us to make decisions on how to run the business more effectively.
Good record keeping will allow you to keep track of the health of your business. Again, seek professional help or read as many books as possible to aid you growing your business effectively and keeping it on track. Don become overwhelmed with everything in your business and allow this area to be the one that always falls short. Remember the rule simplify! Get the information you need to make a proper decision and give the government the information they need in the form of tax return or reports.
Lets get started.
There are a number of logs that are necessary in the preparation of good records. They are: time, food, auto, and asset. In addition to these logs we need to keep track of income sources: private pay, government pay, grants, and food program. The other sources of funding must also be tracked: bank loans, vehicle loans, and loans from others. The final things that need to be kept track of are the valid expenses of the business.
Lets break down each of the above in a little more detail.
Income sources
1. Private pay from parents by child
2. Food Program (USDA)
3. Grants
4. Government Programs
I recommend that you keep track of each source of income separately and then report them separately on your income tax return. Each source can be verified by the IRS so if you report it this way there is no question to its accuracy. All money received should be deposited into a business bank account. This allows you to easily verify the income to the deposits that were made during the year.
Time, Food, and Auto
Many states provide a calendar for the tracking of these figures. In the end we need to know how many hours the day care was in operation to calculate the time space percentage (discussed previously.) Do this daily and weekly, (record on the calendar) to be able to answer all questions at the end of the year on your tax return. If you are anything like me, you can't explain what you did last week much less what you did eleven months ago.
In 2004 the IRS made a significant change in the calculation of food expense. Prior to 2004 the only way to track food was to provide receipts of food purchases. This method was always in question to providers on how to determine what was personally eaten food, (non-deductible) and what was consumed by children, (deductible). We now have a new log to keep. You now need to provide the number of breakfast, lunch, dinner, A.M. snack and P.M snack. The IRS provides a rate that is equal to the tier-one food rate for the USDA food program.
This new program eliminates the tracking of food receipts. I still recommend keeping the food receipts to prove that you have spent at least what you are claiming. You are still allowed to keep actual receipts and use those for expense. Just realize that on audit the auditor will do a test of meals served and if your expense is higher than the calculation of meals times rate they will argue to reduce the expense.
The auto log is simply the record of miles driven on a personal vehicle for the pursuit of business. If the vehicle is used 100% for business you may take the actual expenses for that vehicle. If you share the vehicle for personal and business you need to determine the percentage of business that the vehicle was driven. The choice of using actual or mileage method is made in the first year of service. In both methods you will need to keep an accurate mileage log. The total miles driven are also necessary. The other information needed is date, miles driven, and what the business purpose was. This can be recorded on your calendar or a special book specifically for this purpose. Again, if you do it daily, it becomes natural to you and the information is readily accessible for tax time.
Asset Log
Asset Log is defined as: what is in your home that will last longer than one year. There are two types of assets: those you owned before you started operation, and those you purchased after you started operations. These assets can be further broken down into those that are 100% used for business and those that are shared by you personally and the day care. No matter which kind the assets are you need to record information about them.
Owned before operations started
1. Asset Name (ie refrigerator)
2. Location (room from floor Plan)
3. Fair Market Value at date of start of operation
4. How you determined value
5. Asset type
Purchased after operation started
1. Asset Name (ie refrigerator)
2. Location (room from floor plan)
3. Date Purchased
4. Where purchased
5. Asset Type
Based on the above information you will be able to create a depreciation schedule and claim the proper amount of expense. The depreciation schedule will either go directly to the business return or be further reduced by the time space percentage depending on whether it is a shared asset or a total business asset.
To be continued...
About the Author:
The Daycare Diva, Christine G. Groth, is the creator of The Guide to Instant Daycare Profits. To learn more about this step-by-step program and to sign-up for her FREE How to Start a Daycare tips and articles, visit
http://www.ExpertsAtDaycare.com
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637
Date Published :
Jul 11 2007