About United Way

United Way brings people together to build strong communities where everyone thrives.

As one of the world's largest privately funded charities, we serve 95% of U.S. communities and 37 countries and territories; our humanitarian aid supports 48 million people every year. Through United Way, communities tackle tough challenges and work with private, public, and nonprofit partners to boost education, economic solutions, and health resources.

United Way is the mission of choice for 1.5 million volunteers, 6.8 million donors, and 45,000 corporate partners in more than 1,100 communities worldwide. Together, we are building resilient, equitable communities across the globe. Learn more at UnitedWay.org. Follow us: @UnitedWay and #LiveUnited.

About MyFreeTaxes®

MyFreeTaxes helps people file their federal and state taxes for free while getting the assistance they need. United Way provides MyFreeTaxes in partnership with the IRS’s Volunteer Income Tax Assistance (VITA) program to help filers prepare their tax returns on their own or have their return prepared for them for free.

For millions of Americans, tax refunds and credits are essential to their financial stability and success. These credits maximize filers’ refunds and provide important opportunities for individuals and families to build financial stability. For many households, their tax refund may be the biggest check they receive all year. For entrepreneurs, filing taxes can make or break their financial bottom line.

Since 2009, MyFreeTaxes has helped more than 1.3 million people file their taxes for free while claiming over $1 billion in refunds and saving over $260 million in filing fees.

About Civitas Strategies

Founded in 2009 by Gary Romano, Civitas Strategies, is a management consultancy focused on increasing the impact of mission-driven organizations, both for-profits and nonprofits. The pandemic of 2020 uncovered countless crippling vulnerabilities for small businesses. As a result, we shifted our work to focus more intensively on the business basics required for small businesses to survive and thrive. Our work across the country since then includes business coaching, technical assistance, and grant administration support to small business owners which includes sole proprietors and corporations.

Introduction

Small businesses play a critical role in our economy, generating income and wealth that supports the financial needs of entrepreneurs, employees, and their families. However, the costs and stress associated with filing business-related taxes limit the positive financial impacts of self-employment for many entrepreneurs, including home-based child care providers.

United Way created this guide to help more owners of home-based child care businesses easily and accurately file their taxes for free. Designed for both full-time and part-time entrepreneurs, this guide takes you through the steps of getting ready to self-prepare your taxes using online software.

This guide has two parts.

Part I: Getting Ready for Tax Season focuses on what you need to know about taxes and how to prepare for tax season.

Part II: Filing Your Return Online offers step-by-step instructions on how to use MyFreeTaxes to complete your return online.

This guide will help you take each step in your tax-filing journey. The layout is in a simple question-and-answer format based on the questions frequently posed by other home-based child care providers. To answer the questions, we drew upon official US Internal Revenue Service guidance (including their audit guide for child care providers).

  • Taking a very large loss on your business or having losses year after year — businesses will take a loss from time to time (we’ll review that later), but you want to avoid having losses that are far more than what you earned. After all, if your business regularly loses more money than it earns, the IRS may be curious about why you continue to operate it!

  • Claiming 100% use of your vehicle. Some of you may have a van or car you use for your business — that’s allowed. However, reporting that the vehicle is only used for work (and never for personal reasons) can draw attention since it is less common.

As you can see, many red flags can be easily avoided through proper understanding of and preparation for your taxes.

PRO TIP Keeping good records throughout the year will make tax preparation easier.

How to File Your Taxes for Free

MyFreeTaxes helps people file their federal and state taxes for free while getting the assistance they need. United Way provides MyFreeTaxes in partnership with the IRS’s Volunteer Income Tax Assistance (VITA) program and is designed to help filers prepare their tax returns on their own or have their return prepared for them for free. 

Why Care About Your Taxes?

Taxes are an important consideration for any business. Through taxes, we all contribute to our government at the national, state, and local levels. Paying taxes and following IRS regulations is important. It’s also important to take advantage of all the deductions and tax credits for which you are eligible. This will reduce your taxes, maximize your profit, and allow you to continue investing in your business.

Effective tax preparation can also head off the long-term cost of an audit. Though only a relatively few people are audited every year, if you are audited, the cost in time and money can be great.

The best way to avoid an audit is to keep in mind common “red flags,” or issues that often lead to an audit. The most common red flags for home-based child care providers are:

  • Not including all your income on your taxes — such as leaving out a 1099 you received from one side job even though you reported the income from your “day job.”

  • Taking off too many expenses or ones that are high — like a provider who claimed $40,000 in cell phone expenses for themselves each year.

MyFreeTaxes Self-Employed Tax Guide 
for Home-Based Child Care Businesses

How does it work?

It’s easy! Head to MyFreeTaxes.com to get started. Once there, use our quick and easy tool to indicate whether you prefer to prepare your own taxes online or want to have your taxes prepared for you. After you tell us how you want to file, we’ll ask a few simple questions and connect you to the free tax filing options for which you are eligible. 

Over 70% of people are eligible for IRS-sponsored free tax filing services such as the Volunteer Income Tax Assistance (VITA) program, so there’s a good chance you qualify. In the off chance that you’re not eligible for free tax filing through VITA, we’ll connect you to alternative free tax filing options so you can still file for free.

Have questions or need support while using one of the tax filing options we recommend? Visit the MyFreeTaxes Support page to receive assistance from IRS-certified tax specialists via phone, email, or live chat, or refer to our FAQs and filing guides.  

What is the IRS VITA program?

For over 50 years, the IRS Volunteer Income Tax Assistance (VITA) program has provided free tax preparation services to qualifying individuals. In 2021, tens of thousands of VITA volunteers at 2,800 VITA sites across the nation prepared nearly one million returns for eligible filers and generated $1.7 billion in refunds. 

Most VITA sites provide services in person, but United Way’s MyFreeTaxes program provides VITA services virtually, enabling you to file your taxes for free from the convenience of your laptop, smartphone, or other digital device.

Part II: Filing Your Return Online

Why Tax Prep Software is a Good Idea for Small Business Owners & Self-Employed Entrepreneurs

Many self-employed business owners can prepare their own taxes. Using tax software is a great way to save yourself time and money. It also can give you peace of mind, since many calculations are performed for you and there are automated cross-checks to ensure you are properly accounting for your revenue and expenses. According to the IRS, filing electronically helps you avoid common and costly errors. Best of all, it puts you in the driver’s seat of this essential business responsibility - filing your annual tax return.

Q: How do I know if I am self-employed?

A: If your business is taxed as a sole proprietorship, you are self-employed. You will file a Schedule C to report your business revenue and expenses and pay a self-employment tax of 15.3% on your business profit, after deductions.

How to File Your Taxes for Free

MyFreeTaxes helps people file their federal and state taxes for free while getting the assistance they need. United Way provides MyFreeTaxes in partnership with the IRS’s Volunteer Income Tax Assistance (VITA) program and is designed to help filers prepare their tax returns on their own or have their return prepared for them for free. Learn more about MyFreeTaxes and the IRS VITA program by reviewing the introduction section of this guide.

How does it work?

It’s easy! Head to MyFreeTaxes.com to get started. Once there, use our quick and easy tool to indicate whether you prefer to prepare your own taxes online or want to have your taxes prepared for you. After you tell us how you want to file, we’ll ask a few simple questions and connect you to the free tax filing options for which you are eligible.

Most MyFreeTaxes users file their taxes using a version of TaxSlayer® software that the IRS procures for the IRS VITA program. This guide provides step by step instructions for filing your Schedule C tax return through MyFreeTaxes and TaxSlayer.

How to Use this Guide

You may feel a bit intimidated by the idea of doing your own taxes for your business, but this guide will help you have a hassle-free experience that can save you money, minimize the risk of audit, and help you set goals to improve your business practices for many years to come. You’ll come out of tax season more confident about your return and your understanding of it.

This guide builds on the MyFreeTaxes Self-Employed Tax Guide Part I: Getting Reading for Tax Season and is intended for self-employed business owners. This may include home-based family child care programs or child care centers that are owned by a sole proprietor.

It’s best to use this guide as a reference while you’re preparing for and completing your tax return. The goal of this guide is to help you to accurately report your business revenue and expenses while claiming important deductions. This guide is primarily focused on helping you complete your Schedule C, which is the portion of your tax return where you report your business income and expenses. If you need assistance with other parts of your tax return, you can access assistance at MyFreeTaxes.com/Support.
The roadmap below lists the steps in your journey to file self-employed taxes using MyFreeTaxes. Look for this roadmap throughout the guide to chart your progress.

Access MyFreeTaxes.com

When you access MyFreeTaxes, you will be asked to choose how you want to file your taxes.

You may choose “File My Own Taxes” or “Have My Taxes Prepared for Me.” For this guide, we used the “File My Own Taxes” option because many small business owners are not eligible for the “Have My Taxes Prepared for Me” option.

Gather your documentation

Once you log into the tax software, you will need to enter basic demographic information about yourself (and your spouse and dependents, if you have any):

  • Name

  • Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)

  • Date of birth

  • Marital status

  • Dependents

  • Address

  • Other information to help determine your personal tax credits, including if you are a U.S. citizen; were a student last year; can be claimed as a dependent on another person’s taxes, or have any dependents to claim on your taxes.

  • Other information to help determine your personal tax credits and liabilities.

Next, to help prepare your business taxes with ease, you want to be sure that you have your revenue and expense records up-to-date and handy. Perhaps you have an accounting system where this data can be pulled, or you have a recordkeeping system with this information. You will generally need:

  • 1099 forms

  • Bank and credit card records

  • Canceled checks

  • Year-end or weekly receipts that show what parents paid for child care

  • Paid receipts or invoices for goods or services that you purchased

  • Payroll records, if applicable

  • Mileage records documenting the business use of your vehicle

  • Time-Space percentage calculation for home-based child care providers

Having these records will help you determine what tax forms you will need.

Indicate all forms of Income

After entering basic demographics about yourself, you will be prompted to enter your forms of income. We recommend that you choose the “I want to be guided” option so you can be taken through a simple questionnaire to determine if any of the forms listed below apply to your tax situation.

Alternatively, if you choose “Select my Forms”, you will then be shown a list of various income types and the associated tax forms. If you have one of these forms, you will click BEGIN to be guided through entering the information from that form into the tax prep system.

In order to be directed to complete the Schedule C, you must answer “yes” to this question:

You will then begin inputting your business revenue. Your revenue is all the money you took in for your child care business from all sources, even if you are not issued a 1099. This should include cash and money from cash apps. These are the forms you will complete:

Profit or Loss from Business. This is how you will report self-employed income. This will create your Schedule C. Remember that your income includes cash and checks received from customers and clients. The bulk of your business revenue and expenses will be included here. Later in this guide, we cover this form in detail and guide you step-by-step.

1099-NEC. Here you will enter details from the 1099-NECs that you received. That stands for nonemployee compensation. You will likely receive a 1099-NEC for other business-related payments received. For instance, if you received a subsidy or any other contract payments, and you were issued a 1099-NEC, you would include those here. You may also receive a 1099-NEC if you received grants and awards, such as stabilization or relief funds, or other taxable income that came to your program through state funding, like subsidy payments and the food program (CACFP) payments received.

The software uses the same labels that you will see on a 1099-NEC that was issued to you. You will just need to enter the information from your form into the software.

Payer – the company that paid you

Recipient – your business information

TIN – tax ID number (such as an EIN)

1099-K. If you accepted $600 or more in business payments through a third-party payment processor like Square, Venmo, or Cash App you should receive a 1099-K. This form lists all of the income you received through this payment processor for the tax year. Check your payment processor account(s), if you have any, to make sure you receive all of your 1099-Ks.

Because 1099-K payments are only issued for business transactions, the system will prompt you to enter your 1099-K income when you are completing your Schedule C. So, keep your 1099-K(s) handy, because you will enter that income as part of your gross receipts on the Schedule C – Income page.

PRO TIP See MyFreeTaxes Self-Employed Tax Guide, Part I for some helpful worksheets that you can use to organize your income so that you can readily enter it into the tax filing software. These worksheets can also keep your taxes organized.

The system also lists Less Common Income as an option. This usually will not be applicable to your business earnings as it is referring to prizes or awards. Be sure to list any grants that you received as Form 1099-NEC income and not less common income. Doing that will be sure that it is taxed correctly as your self-employed income.

Begin Completing your Schedule C

Now, it’s time for you to begin to enter the remainder of your gross income and business expenses for your Schedule C.

We recommend that you choose the “Guide Me” option so that you can be guided through the completion of your Schedule C.

First, you will be directed to enter basic information on your business such as the name, tax ID (such as your Employer Identification Number – EIN, if you have one), address, and business type.

If you don’t have an EIN, consider getting one for privacy reasons. But you can only use a newly issued EIN if it was created within the tax year of your return. If you created an EIN on January 15, 2023, you could not use it for your 2022 tax return. Once your EIN is created, you will keep the same one to file annually.

Next, you will see questions about your business. The first question is your accounting method. This is a required entry on tax filings. Businesses must state if they use the Cash or Accrual accounting method. The Cash Method is the most common accounting method for small businesses, including child care businesses. This means that your transactions are accounted for at the time you receive a payment or when you pay an expense. You can opt to select the accrual or another method if it applies but it is uncommon for child care providers.

You’ll then need to select a closing inventory method, which is not applicable to child care providers.

Next, you’ll check the box if you “materially participated” in the operation of your business during the tax year.

Then, you will check off any remaining boxes that apply to your business.

For instance, if you made any payments in the tax year that would require you to file Form(s) 1099, you would check the box to indicate that. If you issued a 1099 to someone that you contracted to perform a service, like cleaning, or a substitute, and you paid them more than $600, you will check the box. 

Note – In some cases, sole-proprietors issue 1099s to employees or helpers. If you issued any 1099s, enter them as contract labor.

Be mindful that you are classifying your employees properly. Typically, if you direct how someone works, they are an employee. For more information on classifying staff, see Resource 3: Payroll Taxes (for businesses with employees) in Part I: Getting Ready for Tax Season.

Note that if you log out and later log back in, you will see the below Schedule C menu options. There, you can move through the menu on your own, or you can choose Restart Schedule C Guide and you will be guided through the completion of your Schedule C.

Enter your self-employed income

Now, back to preparing your filing using the MyFreeTaxes Schedule C guide! You will be directed to enter your business’s income. This will be your gross income, so you will need to add up all your cash receipts, 1099 forms, and any other payments that you received. If you entered your self-employed income in the revenue worksheet provided in Part 1 of this guide, you can just enter that total or if you have an accounting system, you can get that total from there.

After entering your business income, you will move on to the Cost of Goods Sold (COGS) guide. Select “no” on this screen. According to the IRS child care audit guide Cost of Goods sold should rarely, if ever, be used. This line is for materials used in manufacturing food or products. You are best served putting your expenses in the appropriate expense category (which we will get to soon!).

Enter your Schedule C business expenses
 Next, you will be prompted to enter your business expenses, based on specific categories. These categories align with allowable business deductions that will be entered on your Schedule C.

Please use the worksheet below to review these expense categories in the order they are displayed. You can use this worksheet to learn what expenses should be included within each category, and practice entering your expenses before inputting them into the software.

A Note for Home-Based Child Care Providers

In this Schedule C - Expenses section, you should only input expenses that are 100% related to your business. Any expenses that have a shared business and personal use will need to be entered as a Business Use of Home Expense, subject to your Time-Space Percentage.

Category Description Total Expenses ($)
Advertising Here you’ll enter costs to promote your business including online and print ads, brochures,
mailers, flyers, business cards, and website costs.		    
   
Contract labor If you issued a Form 1099 to someone that you contracted to perform a service, like cleaning, or a substitute, and you paid them more than $600, you will enter the amount paid here.

Note – In some cases, sole proprietors issue 1099s to individuals who help with their
business. If you issued any 1099s, enter it as contract labor but be mindful that you are
classifying your employees properly. Typically, if you direct how someone works, they are
an employee. For more information on classifying staff, see: Resource 3: Payroll Taxes
(for businesses with employees) in Part I: Getting Ready for Tax Season.
Commission
and Fees 		This line is intended for payments made for referrals or sales commissions that are
occasional or limited. Accordingly, most home-based providers don’t have an entry on this line. If you do, you may want to confirm the costs and ensure they are right for this category.		    
   
Depletion Typically, depletion is the use of a natural resource during your business, such as mining
or drilling. It is not typically applicable to a child care business.		    
   
Employee
Benefit
Programs 		Do you have a company health or accident insurance or other programs
associated with your business (not your personal expense)? Other programs like group-term life insurance, dependent care assistance programs and/or child care or education assistance should also be included here. 		   
   
Health
Insurance 		Here you will enter the total amount of health insurance premiums you paid for yourself,
your spouse, and your dependents (under age 27) in 2022. This includes Medicare
premiums that you voluntarily pay. You can deduct up to 100% of health insurance
premiums for you, your spouse, and your dependents if you're self-employed and have a
net profit from your self-employment.

This is only for qualifying private health insurance plans, not those sponsored by an
employer. For example, you cannot include any premiums that are paid through a spouse's
health insurance benefits through their employer.

Further, if you or your spouse were eligible to participate (even if you declined coverage) in
an employer's health plan at any time during a given month, you cannot take the deduction
for that month. For example, if your spouse’s job offers health insurance and you decline it,
but paid into your own plan, you cannot take this deduction.

The deduction may be limited if the business has low net earnings. You cannot deduct more
in premium payments than your net profit made from self-employment. This means that
you may not be able to deduct 100% of your premiums.

This entry should be reduced by any reimbursements received. For example, if you have a
monthly insurance premium cost of $1,500 and $500 is paid through a company health
reimbursement arrangement, you can only deduct $1,000. These deductions are figured as
part of your Form 1040 as an adjustment to your income, not as part of Schedule C.
However, because this deduction is for the self-employed, you are prompted to enter it as
part of the Schedule C questions in the software. 		   
   
Insurance This is for insurance other than health. Include your general liability insurance, renter’s,
fire/theft/flood, and worker’s compensation insurance if you have employees.

Homeowner’s or renter’s insurance on a home you use for a child care business will be deducted in the business use of your home section later in this guide. 		   
   
Long-term
Care
Insurance 		Long-term care benefits include both payments made under a long-term care insurance
contract as well as accelerated death benefits. If you paid into a plan for yourself, spouse or
dependents, the premium may be tax deductible.		    
   
Mortgage
Interest 		This line is for interest related to a loan that is exclusively for your business (and not one
shared with your personal finances, such as a home mortgage).

Mortgage interest on a home you use for a child care business will be deducted in the business use of your home section later in this guide. 		   
   
Other
Interest 		This includes interest you paid directly related to your business for credit cards and loans.

Deductible interest can include interest on business credit cards (not personal ones) and
business loans such as the Economic Injury Disaster Loan or an SBA 7a loan. 		   
   
Legal and
Professional
Services 		Include any fees you paid to a lawyer, accountant, or tax preparer, for business use only, as well as membership fees for professional memberships like the National Association of Family Care or the National Association for the Education of Young Children.    
   
Office
Expense 		Here’s where you want to include amounts paid for office expenses, including supplies
(such as ink, toner, paper, staples, writing utensils, office furnishings, etc.) and postage, as
well as your business communication service costs (such as cell phone service, internet
service, second phone line, fax, and video conferencing services). It is rare to not have any
expenses in this category.

Typically, here is where you include office expenses that cost less than $200. Assets, even
those that cost less than $2,500, like computers, telephones, copiers, and furniture will be
entered as a depreciation expense.

Be mindful of how you enter your office expenses. If the expense was 100% business
related, then you can enter the full amount of your expense here.

If an expense was for both personal and business use, you will first apply your Time-Space Percentage, then enter the resulting amount here. 		   
   
Pension and
Profit Sharing 		These are contributions to your employees' retirement accounts, not your own. Costs
include SEP IRAs and SIMPLE IRAs. 		   
   
Rent or
Lease of
Equipment 		This only applies to the rental of business equipment such as copiers, office furniture,
computers, printers, etc.		    
   
Rent or
Lease of
Property 		This is rent paid for property used for work only, not for an office in your home.

Rental of a home you use for a child care business will be deducted in the business use of your home section later in this guide.		    
   
Repairs and
maintenance 		This includes any repairs and maintenance of the space your use or your equipment.
Repairs and maintenance are required for you to conserve or maintain your property – these
are repairs that do not add value to the property.

Repairs and maintenance of a home you use for a child care business will be deducted in the business use of your home section later in this guide.		    
   
Supplies Supplies include items you use with the children such as art supplies, diapers and wipes, toys, learning materials, and cleaning supplies. For home-based providers, the software will allow you to enter in the amount of your expenses but will not apply your Time-Space Percentage to them. This means if you spent $100 on supplies that were used 100% for your business, enter $100. If you spent $1,000 on supplies that were used for both business and personal use and your Time-Space Percentage is 35%, enter $350.    
   
Taxes
and
Licenses 		You can enter taxes (and local taxes, excluding federal taxes) and business license fees
here. These should only be taxes and fees that are 100% related to your business.
For example, your licensing fee so you can operate a home-based business or a child care business would be entered.		    
   
Travel If you traveled for work or paid for business travel expenses for your staff, you will include
those costs here. This does not include expenses for mileage or local meals but rather if
you had to travel for a conference, training, or business meeting. Include costs like airfare,
hotels, rental cars, taxis, ride-share services, and baggage fees.		    
   
Meals (50%) This is for business meals that were not purchased at a restaurant (e.g. – grocery store or
convenience store). For example, if you were having a business meeting or away on
business travel and purchased a sandwich from 7-11.		    
   
Meals (80%) This is only applicable to certain transportation workers. If you are subject to the
Department of Transportation (DOT) hours of service limits, the allowable deductible
percentage is 80% for business meals while away from home. Those who this applies to
would be property or passenger-carrying drivers such as a tractor trailer or Greyhound bus
driver that require you to be away from home overnight.		    
   
Meals (100%) This is for business meals purchased at a restaurant for immediate consumption. For
example, if you were having a business meeting or away on business travel and purchased
lunch from a restaurant. For tax years 2021 and 2022, your business meals are 100%
deductible if food and beverages were purchased from a restaurant.

Note that this is not where you will enter the meals served to children. We recommend you enter those under Other Expenses.		    
   
Utilities This applies to you if you have an office or other business property that's not part of your
home. This includes utilities such as gas, electricity, internet, or water. This also includes
trash collection, pest control service, and security alarm monitoring service.

Utilities for a home you use for a child care business will be deducted in the business use of your home section later in this guide.		    
   
Wages (less
employment
credits) 		Make sure that the wages you enter are only for W-2 employees reported to the
government. As a sole proprietor, you cannot pay yourself as an employee. You can take
money out of the business, but your “pay” is considered the amount on Line 31 (your net
profit or loss) so there’s no need to enter money you took out for yourself throughout the
year here.
    
   

Enter Business Car and Truck Expenses

The next step will be entering your Business Car and Truck Expenses.

Keep in mind you can track and deduct your mileage for business-related trips, even trips that don’t involve transporting the children in your care, such as going to Costco to buy child care supplies or driving to a child care provider training. You can also include in this amount your business portion of car loan interest and parking fees and tolls.

For your mileage, make sure you keep track of the day, purpose, and total miles because you will need to enter that information for this deduction. It can be something as simple as:

June 9 – 3.25 miles going to Walmart for supplies

PRO TIP The IRS standard mileage rate was $0.56 per mile from January 1, 2022, to June 30, 2022, and then increased to $0.585 (that is 58.5 cents) per mile through December 31, 2022, due to increased fuel prices. In addition to those standard miles, you can claim the business portion of car loan interest, parking fees, and tolls paid. However, if you use standard mileage, you cannot deduct other costs associated with your car, including gas, repairs/maintenance, insurance, depreciation, license fees, tires, car washes, lease payments, towing charges, auto club dues, etc.

Next, you will need to determine if you are using the standard mileage deduction or actual expenses to claim your business vehicle expenses. The system will guide you to the appropriate method based on whether you own or lease the vehicle and the methods that you previously used in past tax years.

In general, standard mileage is better if you drove a lot of miles. This will get you the miles driven multiplied by the IRS mileage reimbursement rate.

Actual expenses might get you a bigger tax break if you had higher repair, gas, and insurance expenses for the year. With actual expenses, you need to keep track of all payments associated with the business use of the vehicle, including car loan payments. Review the How Do I Include Vehicle Costs? section of Part I: Getting Ready for Tax Season to learn more.

Standard Mileage

If you are using standard mileage to determine your vehicle deduction, you will enter it under Car and Truck Expenses.

In order to calculate standard mileage, you must enter the business miles that were driven during the tax year. Be sure to have documentation of the business miles driven for your records and in case you are audited. The system will apply the standard mileage rate to your business miles driven to calculate your deduction.

Remember, you can also claim the business portion of car loan interest, parking fees, and tolls.  To claim those expenses, you will enter them as Other Expenses once you get to that screen. As noted on the screen shot above, if you are using Actual Car or Truck Expenses, you will enter those expenses under Depreciation which follows this section.

Next, you will be guided through reporting depreciation of your business assets.

Enter business assets subject to depreciation

Depreciation can be an intimidating subject but is a critical part of your business tax planning. Depreciation is the practice of deducting a large business cost over time rather than in just one year. This is usually a requirement when you want to deduct certain large purchases (over $2,500) or an improvement. You can also depreciate your home if you own your home and use a portion of your home for business.

You may be curious about what is classified as an improvement. An improvement differs from a repair because it is not meant to get something back into working condition, instead, it improves or adds value. An example of an improvement would be the installation of a new fence or adding a new roof.

We will guide you through the rest of the Business Depreciation screens. For a better understanding of depreciation, view What is depreciation?

When you select “Assets”, you will enter the following information on each of your business assets individually:

Note that home-based child care providers must enter the percentage of business use as their time/space percentage, if the asset is used regularly for business. If the asset is used exclusively for business, and has no personal use associated with it, you can enter your percentage of business use as 100%.

Even though you may opt to depreciate an item using Section 179, you’re still required to choose a depreciation method from the drop down list shown here.

You will then indicate if the property is a listed property. A listed property is one that is allowable to use for both business and personal purposes.

Typically, you will only select the listed property option if it is a vehicle that you are depreciating.

Listed Property Definitions

Auto – small vehicle weighing 6,000 pounds or less

Electric Auto – electric vehicle weighing 6,000 pounds or less

Truck (placed in service after 2002) - a vehicle such as a pickup truck

Truck (No Limits) – a vehicle such as a pickup truck

Heavy SUV – larger vehicle exceeding 6,000 pounds, such as a van

Not Listed (Vehicle) – an eligible vehicle that does not fit the other descriptions

Entering Actual Car or Truck Expenses

If you are claiming actual business car or truck expenses (not using standard mileage) you will be able to depreciate your vehicle and claim your actual expenses under the Depreciation screen.

You will need to enter some information about the vehicle, such as the date it was placed in service (the first time you used it for business purposes), the original cost and the percentage of business use. Unless you have a dedicated vehicle used only for business and not at all for personal use, this figure will not be 100%. A simple way to calculate your percentage of business use is to track your total miles driven and the total business miles. You will divide your business miles driven by your total miles to get the percentage of business use.

For example, if you drove your vehicle a total of 12,000 miles during the year and 4,800 miles were for business use, your business use percentage would be 4800/12000 = 0.4. You will multiply 0.4 x 100 to get 40%.

You will then input the amount, if any, of Section 179 deduction that you will take on the vehicle and then indicate if you claimed any special depreciation on your vehicle in a prior year. These are both faster ways to depreciate eligible expenses. For a better understanding of these depreciation topics, view What is depreciation?

Under Listed Property Information, you will select the type of vehicle that you are depreciating:

After you select the vehicle type, you will be prompted to enter your actual expenses. Actual car expenses include the following:

  • Licenses

  • Lease payments

  • Registration Fees (not plates)

  • Gas

  • Insurance

  • Repairs

  • Oil

  • Garage Rent

  • Tires

  • Tolls

  • Parking Fees

You will total up all of your relevant receipts and enter your total car expenses in the “Actual Expenses” box.

Once you’ve entered all your business assets, you will move to the Depreciation Questions. Answer each question that applies by checking the corresponding box.

Check the boxes if they apply to your situation. Note that the Business Income Limitation will be pre-populated with $1,050,000 which is the maximum Section 179 expense deduction allowed. Most self-employed businesses will not exceed that figure.

Enter your “other expenses”

Next, you will be guided through your Other Business Expenses.

You will be able to enter other business expenses that did not fall into the previous expense categories listed. You will enter these expenses, by category, one at a time.

This section covers anything else that is deductible but not listed elsewhere. The most common will be meals served to children and software or apps that cost more than $200 (otherwise they can be listed as an office expense). Here is where you will list accessibility and financing expenses online service fees, bank and merchant fees, and credit card processing fees.

For example, if you paid $500 for janitorial services over the year, you would enter that as:

PRO TIP (TaxSlayer specific) If you took the standard mileage deduction for your business vehicle, you would enter other allowable car expenses such as parking, tolls and registration fees here as Other Expenses.

Enter your business use of home expenses

Keep in mind that you can deduct space in your home used exclusively for your child care business. This can include a home office, even if it is just part of a larger room or a storage area where you keep supplies for your business. The software does not provide a lot of information on how you calculate your time-space percentage, so we recommend that you first calculate that on your own, then enter that data into the software and ensure they match.

PRO TIP As a rule of thumb “regular use” means you use the space two or more times per week.

Direct expenses should be entered at 100%.  Indirect expenses should be calculated with the business use (Time-Space) percentage. These are the expense lines that you will see in which you need to enter your direct and/or indirect expenses:

Expense Direct Expenses Indirect Expenses
Casualty Loss    
   		    
   
Deductible Mortgage Interest
   
   
Real Estate Taxes
   
   
Excess Mortgage Interest    
   		    
   
Excess Real Estate Taxes    
   		    
   
Insurance (e.g., mortgage insurance, property insurance)    
   		    
   
Rent    
   		    
   
Repairs and maintenance    
   		    
   
Business Use of Home - Expenses    
   		    
   
Utilities    
   		    
   
Other expenses (for example, cleaning and lawn care services, telephone and cable)    
   		    
   

You will then be asked about the Depreciation of Your Home. This is only applicable if you own your home.

Your home’s adjusted basis is usually the amount you paid for it plus the value of improvements made.

The fair market value is what the home would cost currently if it was on the market.

Accumulated depreciation is the total depreciation taken to date on the home.

After you enter details about your home, such as the date first used for business and adjusted basis or its fair market value, the system will depreciate the expense, based on your Time-Space Percentage, and provide you with the deductible depreciation amount for it. There is a separate category in TaxSlayer, “Depreciation”, where you can depreciate other large purchases that are not subject to your Time-Space Percentage.

Next you may see the Schedule A Adjustments screen which will show you what your calculated Business Use of Home Percentage is and the deductible mortgage interest and real estate taxes you have based on your business use of home.

You will then be taken back to the Schedule C summary page. There, you can go back and edit previous entries or move on.

Qualified Business Income (QBI) Deduction

As you complete your business-related tax sections, be mindful of the Qualified Business Income (QBI) deduction, also called the “pass-through income deduction”. QBI is the net amount of qualified income, deductions, gains, and losses from your business. This deduction allows you to deduct up to 20% of your self-employed/small business income from your total taxable income. If eligible, the QBI is deducted from your Adjusted Gross Income (AGI).  So, while this is not part of the Schedule C, it is dependent upon your business income, which is why you’re asked about it when preparing your business taxes.

You will be asked additional questions to calculate your Qualified Business Income deduction. The first question is your qualified business income adjustment amount. This is because you need to adjust your qualified business income for the self-employment tax deduction, the self-employed health insurance deduction, and for your deduction for contributions to qualified retirement plans. Unless you are entering manual adjustments, you can leave this blank.

Here is more information from TaxSlayer on these QBI adjustments:

Enter the total amount of adjustments as they apply to you, otherwise leave this blank. If you are unsure of what your totals are, you can complete the remainder of your filing and come back to this section later to enter accurate information. If you have no adjustments to make, you will leave the first box blank.

If you paid W-2 wages to employees, you would enter the total amount paid. If you have no W-2 wages paid to employees, you will leave that box blank.

The program will automatically calculate your QBI based off of your business income entries.

A specified service business is one that is in certain fields such as health, law, consulting, athletics, financial services and investment management in which your status/reputation as a regarded member of that trade determines your income.

Typically, those individuals cannot take the QBI deduction.

Congratulations!

Congratulations! You just entered all the information needed on your business and can now complete the rest of the screens to complete your tax return.

How to Make Tax Preparation Easier

Many small business owners can self-prepare their tax return to save money and ensure their taxes are being done accurately. After all, no one knows your business like you do! The key to hassle-free tax filing is to have proper recordkeeping and bookkeeping throughout the year. Keeping track of all payments you receive and receipts and invoices for your purchases is invaluable and will save you a lot of time.

The importance of filing electronically

When it’s time to submit your taxes, submitting electronically is far better than printing and mailing your return. This is because there’s a higher degree of accuracy and the process is much quicker.

Need more time to file or to pay your tax bill?

You may find that you need more time to file or that you have a tax bill and need more time to pay it. If that happens, we suggest that you pay what you can and then request an extension. You will need to put in the request by April 15th, but you can receive an extension for up to 6 months. You will still have to pay additional penalties for not paying any taxes you may owe on time, but that will be better than ignoring it altogether. There is no financial penalty for filing an extension if you need more time to file and are owed a refund.

Need more help?

There is help available for child care providers specifically and also general resources for small businesses!

You may be able to receive free business coaching from a child care business expert to answer your business questions, or to receive tax education, if you’re located in the following states: Texas, Virginia, Wisconsin, or Indiana. Child care business owners can also visit the Taking Care of Business Blog to view many articles on tax topics and send in your tax questions for an answer.

America’s SBDC represents America’s nationwide network of Small Business Development Centers (SBDCs) – the most comprehensive small business assistance network in the United States and its territories. Sponsored by the U.S. Small Business Administration (SBA), they provide management assistance to small business owners in the form of one-on-one counseling, training seminars, assistance with SBA loans, and technical assistance.

Small business owners and aspiring entrepreneurs can go to their local SBDCs for free face-to-face business consulting and at-cost training on a variety of topics. There are nearly 1,000 local centers available to provide no-cost business consulting and low-cost training to new and existing businesses. SBDCs help local businesses start, grow, and thrive.

You may also call 211 to get connected to additional resources and services that can help you, your family, and your business.

Preparing for Next Year

Now that you’ve filed your tax return this year, consider changes you might make to help the process go even smoother next time! Part I: Getting Ready for Tax Season will help you identify the business and bookkeeping practices you can implement to help ensure your business and your taxes go smoothly.

For an overview of the information contained in this guide, watch our video here:

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For a child care business, you can click the “Business Code” link and enter “day care” and select 624410 from the list or just enter the business code 624410 into the text field.

Meals (100% limit)

As mentioned earlier, we see Other Expenses as the best place to enter meals served to children. This allows providers to enter the cost of fully deductible meals which includes meals served to children (this includes meals that you were reimbursed for by the Food Program (CACFP).

Only home-based providers are allowed to use the standard meal and snack rates for reporting their children's meals expense. This makes your recordkeeping easier than tracking actual expenses. Use the standard meal and snack rates below to calculate your food costs.

Tax Year 2022 (July 1, 2022-June 30, 2023) standard meal and snack rates:

Breakfast Lunch/Supper Snack
Tier 1 $1.66 $3.04 $0.97
Tier 2 $1.66 $3.04 $0.97

According to the IRS Child Care Audit Guide, the rate is based on the Tier I rate under the CACFP. The provider may use the standard meal and snack rate for a maximum of one breakfast, one lunch, one dinner, and three snacks per eligible child, per day. There is still a recordkeeping requirement, which includes the name of each eligible child, dates and hours of attendance in the home-based child care program, and the type and quantity of meals and snacks served. This limit is higher than the amount of meals that CACFP reimburses, so it is best to track and claim all of the meals served.

Total number of meals served Rate Total amount to enter into the
system

Breakfast 		   
   		    
X   		    
=   
   
Lunch/Supper   		    
   		    
X   		    
=   
   
Snack   		    
   		    
X   		    
=   

You should use the rates in effect at the start of the tax year. So, for 2022, you would use the 2021-2022 rates since they were in force on January 1, 2022, the start of the year.

As a home-based child care provider, if you regularly use your home in your business and are regulated, you can deduct the cost of your home and other related expenses. You can do this in one of two ways: the simplified home office deduction, which is a maximum of $1,500, or by applying the time-space percentage to your actual expenses.

For many child care providers, the simplified method represents less than their real costs, so you should use the actual expenses method to determine your home office deduction.

To prepare for claiming these deductions on your return, whether you rent or own your home, there are two steps you need to take: 1) determining the space and time used for care and duties related to your business and 2) determining the allowable expenses related to providing care in your home.

To learn more about the steps to calculate your time-space percentage, and for worksheets to enter your own details, view Part 1: Getting Ready for the 2022 Tax Season and scroll to “How do I include the costs of my home?”.

Now that you have your Time-Space Percentage figured out, it will be much easier to input your numbers into the tax software!

You will first need to enter the hours your home is used for child care per day. Since the software does not ask how many hours you work when children are not present, you will need to factor that in when you enter the hours per day you used your home for the daycare question.

For example, if you usually perform administrative duties, cleaning and other preparation totaling 10 hours per week and you’re open 5 days per week, you will add 2 additional hours to each day.

Keep track of the hours you work when children are not present by noting the time you spend preparing your space for children, cleaning, doing administrative tasks, responding to families, etc. The sample log below shows how you can track the number of hours you work in your home and shows how you calculated the number which can help you in case of an audit.

Date Time spent on task Task description Total time
   
9/25/22   		    
5:30-6:00pm   		 Returning phone calls from
prospective families 		.5

9/26/22 – 9/30/2022
6:30-8:00am 		Food prep and set up play space
(reoccurring Monday – Friday) 		1.5 * 5 = 7.5
   
9/28/2022   		    
5:30-6:30pm   		 Menu planning, filing portfolio
entries, prepare billing statements		 1

9/29/2022
7:00-8:00pm 		Attend online training 1
Total number of hours for week 10

You will then enter the days your home is used for child care per year. For example. If you are open 5 days per week but typically close for another 10 days throughout the year for vacation or other personal reasons, your days used for child care per year would be:

(5 days x 52 weeks) – 10 days closed = 250 days.

Next, you will enter the days your home is available for child care.

Besides entering the time your home is used for child care, you will need to note some information about the use of space and whether you used spaces in your home exclusively or regularly for business.

The above screenshot shows what you will see if you answer “yes” to this question:

Did your daycare facility include BOTH:

  1. Areas of your home used EXCLUSIVELY for business; AND

  2. Areas of your home used PARTLY for business?

If you have both exclusively used spaces and partly used spaces (i.e. spaces used regularly for business but also personal use), you will enter the square footage of each space type followed by the total square footage of the home.

If you answer “no” to that question, this is what you will see:

In this case, you have no exclusive use spaces and will track only those spaces you regularly use for child care.

Next, you will begin listing home expenses associated with your child care business. You will be asked to enter Direct and Indirect expenses. Unless the expense is related to 100% exclusively used business space, you will enter the expense as Indirect.

Home-based child care providers should be mindful not to enter expenses twice. If you list certain expenses like utilities or rent related to your home office or business use of the home, do not enter those expenses again when completing the Schedule C - Business Expenses section of the software.

In this next section, Excesses and Carryovers, you will only enter information if it applies to your situation.

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