Family child care providers have gotten into trouble with the IRS because what was on their license was not accurate. Therefore, I strongly recommend that you review your license to make sure it correctly identifies:
* The rooms that you are using for child care, and
* The number of hours you are caring for children
Here's how this has come up in IRS audits.
Some child care licenses will indicate on them what rooms the licensor has approved for children. In one audit the license did not include the dining room. As a result, the IRS auditor did not allow the provider to claim that this room was used on a regular basis for her business when calculating her Time-Space Percentage.
Not counting any room can make a big difference in how much the provider could deduct on her taxes. The provider being audited had not paid attention to what was on her license. After she was audited she asked her licensor to add the dining room to her license, which was done immediately.
Having the dining room on her license in the first place would have saved us from having to argue about this at the audit.
Note: Just because your license indicates that children are not permitted in some areas of the home doesn't mean you couldn't count them for tax purposes. In another IRS audit, the licensor wouldn't allow children to play in the basement and the license indicated this. But, we argued that she should be allowed to claim the basement space as regular use for her business based on the fact that she used the basement regularly (furnace area, laundry room, office). We won this point in Tax Court. See the Uphus and Walker cases.
In another IRS audit the provider's license showed that she cared for children from 7am - 6pm, Monday-Friday. In fact, one child showed up at 6:30am and other children were sometimes picked up late, after 6pm. At the audit, the IRS auditor denied any hours caring for children outside of 7am-6pm, based on what the license said.
After her license had been issued, the provider did expand her hours of care, but didn't ask her licensor to update the hours on her license. When asked to update her license, the licensor quickly did so.
Still, this created a problem for us at the audit. Eventually, we did win this point, but not until after we have to spend time and energy by getting letters from the licensor and parents explaining the situation.
You can avoid some stress and perhaps additional taxes at an audit, if you insure that your license correctly reflects the rooms and hours for which you are licensed.
If your license doesn't give specifics about rooms or hours, then don't worry about this.
If your license isn't accurate, ask your licensor to change it immediately. I wouldn't wait until your next license renewal. You don't want to wait until after you are audited to be able to produce an accurate license. If your licensor won't change your license until your next license renewal, ask her to write you a letter indicating that you can use the rooms in question and/or can care for children beyond the hours listed.
If she won't write such a letter, send a letter to your licensor that summarizes your conversation with your licensor about this. Your letter should indicate that the licensor told you that you were not in violation of licensing rules by using certain rooms or working certain hours. Ask her to put this letter in your file, so you can retrieve it later in an audit, if necessary.
I don't mind helping family child care providers who are audited. I would prefer if I didn't have to fight over something as simple as an out of date license!
Tom Copeland - www.tomcopelandblog.com
Image credit: www.docstoc.com
For more information about the Time-Space Percentage, see my book Family Child Care Record Keeping Guide.