consultant article retention for Daycare Centers
The key to report retention is to simplify, simplify, simplify. As with any other repetitive task you want to make it as easy as inherent so the main goal is achieved. At the end of the lesson I will reprint a copy of what the Irs is providing to its auditors when looking at child care centers. This facts will give you some insight.
article retention for Daycare Centers
The end corollary of retention accurate records is two-fold. Sometimes we get all caught up in defending against problems with the Irs and tax return preparing and that we forget the purpose of report keeping. We should be using the facts from the records to progress our business and allow us to make decisions on how to run the business more effectively.
Good report retention will allow you to keep track of the health of your business. Again, seek pro help or read as many books as inherent to aid you growing your business effectively and retention it on track. Don't 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 facts you need to make a allowable decision and give the government the facts they need in the form of tax return or reports.
Lets' get started.
There are a number of logs that are indispensable in the preparing of good records. They are: time, food, auto, and asset. In addition to these logs we need to keep track of income sources: incommunicable 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 tiny more detail.
Income sources
1. Private pay from parents by child
2. Food schedule (Usda)
3. Grants
4. Government Programs
I suggest 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 examine to its accuracy. All money received should be deposited into a business bank account. This allows you to as a matter of fact verify the income to the deposits that were made while the year.
Time, Food, and Auto
Many states contribute a calendar for the tracking of these figures. In the end we need to know how many hours the day care was in doing to imagine the time space division (discussed previously.) Do this daily and weekly, (record on the calendar) to be able to respond all questions at the end of the year on your tax return. If you're anyone like me, you can't account for what you did last week much less what you did eleven months ago.
In 2004 the Irs made a indispensable change in the calculation of food expense. Prior to 2004 the only way to track food was to contribute receipts of food purchases. This method was always in examine to providers on how to conclude 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 contribute 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 schedule eliminates the tracking of food receipts. I still suggest retention 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 perceive 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 sacrifice the expense.
The auto log is simply the report of miles driven on a personal vehicle for the pursuance 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 conclude the division of business that the vehicle was driven. The option 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 facts needed is date, miles driven, and what the business purpose was. This can be recorded on your calendar or a extra book specifically for this purpose. Again, if you do it daily, it becomes natural to you and the facts is facilely 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 additional 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 report facts about them.
Owned before operations started
1. Asset Name (ie refrigerator)
2. Location (room from floor Plan)
3. Fair shop Value at date of start of operation
4. How you carefully value
5. Asset type
Purchased after doing 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 facts you will be able to create a depreciation schedule and claim the allowable number of expense. The depreciation schedule will whether go directly to the business return or be additional reduced by the time space division depending on whether it is a shared asset or a total business asset.
Loan List
You will need to keep track of the monies that are entering your business and from where. When you make a loan to the business it needs to be tracked. The bank wants to get their money back when they loan you money and you should want the business to return that money back to you as well. The money you loan to the business should be deposited into your business bank account, and the expenses that the loan was needed for will be recorded in the business checking account.
Many times I will have a victualer complain that they are not being treated as a business person and instead are being treated as a baby sitter. retention accurate records and acting like a business requires you to have good records. Be sure to keep accurate disjunction in the middle of personal expenses and business expenses. By doing this you will be treated as the pro that you are, and will give you piece of mind when tax time or decision time arrives.
Lastly, Direct Expenses
All direct business expenses should be written from your business checkbook. I have found that using a prestige card has been very helpful. If you use a prestige card use it for business purposes only, and pay the balance monthly, you will be able to track expenses easily. Debt is a burden that will many times destroy a new business. Good report retention will allow you to great keep track of the monies coming in and going out. You should keep the receipts linked with the expense and produce them by category, not the month. The Irs wants to know the number of supplies, not January, February, etc. This will allow you to as a matter of fact assemble the facts for the tax return or financial statement purposes.
Whether you decided to use a computer with the many programs that are available for report retention or not, the broad goal doesn't change. You need to systematically assemble the facts in a way that you can make decisions from, and also comply with the laws of your state and federal government.
I belief it would be helpful to take a look inside what the Irs auditor would be looking for. In 2004 the Irs published an audit guide for child care centers. This publication is used by auditors to get up to speed on a inevitable manufactures segment. If you know what they are looking for you can great be prepared when the time comes. It is too late to get ready after you are excellent for audit, because the audit will happen in the middle of two and three years after the year that they are auditing.
The Irs has given its auditors exact guidance that lets you know what issues the examiners are looking for. This is not an absolute list because the private auditor can ask for anyone they want to look at but this is a great starting point.
From Child Care Providers Audit Techniques Guide
1. Be prepared to discuss the business history together with the starting date, a brief report of a typical days activities, and internal controls for income and expenses information
2. If you are taking a deduction for the use of your home, contribute a floor plan, blueprint or other indispensable documents to reflect the square footage of the residence. contribute the escrow and/or end statement to verify the cost of the property. Mortgage business statements showing the paid property tax renting your home contribute substantiation of the expenses and a copy of the rental agreement.
3. Provide copies of Federal Tax Returns for prior and subsequent years, prior Federal and State audit reports, any linked returns: partnership, corporation, or employment tax returns and any Forms 1099 filed and/or received.
4. Provide journals, ledgers, records, notebooks used to keep a report of clients and the number they paid (weekly, monthly, etc)
5. Provide all bank statements, business and personal, for the duration starting _______ and ending _______.
6. If you are participating in the food program, contribute copies of the repayment statement, name and address of the food sponsor, attendance and meal count record, and time record.
7. Provide copy of any advantage or withdrawal plan.
8. Provide substantiation in the form of canceled checks, receipts, statements, or invoices for expenses identified for examination.
9. Provide all business licenses, approvals, registrations, and certifications.
When facing an examination by the Irs, it is best to contribute the auditor with exactly what they ask for and nothing more. respond only the questions they specifically ask and avoid offering additional facts that they don't specifically ask for. You don't want to progress the scope of the audit by offering facts that will lead to additional areas of inquiry. Do not go to the inquiry alone and preferable bring your tax consultant to help you. If the tax consultant has complete knowledge of your return he/she may prefer to complete the audit without you present. This regularly avoids the expansion of the audit and allows it to stride to a end as fast as possible.
If you take the process of report retention one step at a time and do one thing every day you will stay on top of the work and advantage from the wealth of knowledge that can be derived from that information.
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