1. The Business of Child Care
Presented by Tom Copeland, JD For the Association for Better Child Care
Copyright 2017 Tom Copeland

2. Welcome! Instructor: Tom Copeland, JD
Contact me with questions:
Copyright 2017 Tom Copeland

3. Resources
Copyright 2017 Tom Copeland

4. Webinar Objectives This webinar will enable you to
Establish a business relationship with parents
Enforce your contract
Pick the right IRA to help you save money for retirement
Identify the three key record keeping rules to reduce your taxes
Copyright 2017 Tom Copeland

5. Disclaimer
“I am not rendering legal tax, or other professional advice. If you require this type of assistance, please consult a professional to represent you.”
Copyright 2017 Tom Copeland

6. Coming to Terms: Contracts & Policies
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7. You May Set Own Rules Main benefit of being a child care provider
Can run your own business as you want
Highly structured vs. informal program
Religious vs. non-religious activities
Cares for or excludes infants
Many field trips, dramatic play everyday, vegetarian food, etc.
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8. You Must Set Own Rules
As owner of your own business, it is up to you to define your program
No classes for parents: “How to Pay your Child Care Provider on Time”
Parents are not your “friend”
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9. Parents as Clients Many parents have little experience with child care
Last generation of parents who were not in child care as children
Parents may have difficulty understanding child care as a business
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10. Home vs. Center Center Easier to relate to as a business
School for small children
Home
Harder to understand as a business
Doesn’t look like a business, no cashier, no checkout, private home (scary for some parents)
Question for all – Why do some parents not treat providers like a business?
Copyright 2017 Tom Copeland

11. You are Running a Business
“Why do some parents not treat providers like a business?”
“Because some providers do not act like a business”
Hardest sentence to say to parents: “You owe me money”
Some providers don’t like acting as a business
Need to change personal relationship to business one
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12. Parent Enrollment You do not have to accept all parents References
Can say “no” for no reason, or any reason (except illegal discrimination)
Trial period
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13. How to Say “No”
“I do not think this is the best place for your child at this time”
Do not put reasons in writing
Parent may be insulted
Illegal discrimination danger
Survey – charge late fee
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14. Different Rules You can have different rules for different parents
Rates
Pickup times
Other
Reasons for different treatment should be logical
Age of child, parent longevity, “special circumstances”
Survey – refuse to enroll Christmas
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15. Illegal Discrimination
You can run your business however you want with this exception:
It’s illegal to discriminate against parents or children based on: race, color, gender, religion, age, disability, or national origin
Copyright 2017 Tom Copeland

16. What is a Contract? Legally enforceable agreement between two parties
Terms of time and money are enforceable in court
Hours of operation, open/close for holidays, vacations, sick days, etc.
Fees for care, terms of payment, other fees
Survey – verbal contract
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17. Basic Contract Terms Names of all parties to contract
Hours of operation
Terms of payment
Termination procedure
Signatures of all parties
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18. Two Key Rules To avoid problem of parents owing money when the leave –
“Client will pay at least one week in advance”
“Client will pay in advance for the last two weeks of care”
Copyright 2017 Tom Copeland

19. Pay One Week in Advance
Never provide care unless it has already been paid for
You have expenses during the week (food, supplies)
Payment can be on Monday or on Friday for the next week
Parent can pay a little extra per week as a transition
Copyright 2017 Tom Copeland

20. Pay Last Two Weeks in Advance
Most common contract problem: Parents leave without paying
Advance payment covers last two weeks even if rates have gone up
Parent can pay a little extra per week as a transition
You should offer refund if terminating parent immediately
Easier to enforce other rules if paid in advance
Survey – holding fee
Copyright 2017 Tom Copeland

21. What are Policies? Rules that spell out “how” care will be provided
Policy rules are not enforceable in court
Parent does not bring extra change of clothes
Provider does not take scheduled field trip
Provider policies can be simple or extensive
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22. Key Policy Terms Provider information Client responsibilities
Child care program description
Illness, health, and safety policies
Policies for transporting children
No requirements for any policies (other than licensing rules)
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23. Enforcing Agreements
You are always responsible for enforcing your contract and policies
You can enforce your rules, renegotiate them, or ignore them
If you decide not to enforce a rule you should take it out of your contract or policies
Copyright 2017 Tom Copeland

24. Late Pick-Up Parent is regularly late in picking up child
Possible consequences:
Late fee
No late fee if notified by phone within 1 hour
15 minute grace period, then $.50 minute
$1 minute
Termination
2 late pick-up in a month, then termination
Immediate termination
Copyright 2017 Tom Copeland

25. Ending the Contract Reasons for terminating the contract
Disruptive behavior
Violation of the contract
High anxiety
Any reason
Before terminating, you should ask yourself – “Is there anything the parent could do that would change my mind?”
Copyright 2017 Tom Copeland

26. Termination Procedure
“Parent must give a two-week written notice. Payment is due for this notice period even if child is not brought to care.”
“Provider may terminate at will.”
You may give a notice
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27. Managing Your Money - IRAs
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28. First Step
The first step to better manage your money is to gain more control over your spending
When our income rises, so does our spending
Reducing spending is more important that increasing income
Track your spending for a month: fixed vs. flexible expenses
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29. Never Too Late to Start $5 a day x 5 days a week = $1,250 a year
8% for 10 years = $19,127
$10 a day at age 52
8% a year = $294,000 by age 70
Copyright 2017 Tom Copeland

30. Set Financial Goals
Contribute to employer retirement plan to get employer match
Buy adequate insurance
Pay off credit card debt
Establish a 3-month emergency fund
Establish a car replacement fund
Save at least 10% of profit for retirement
Save for your child’s college education
Copyright 2017 Tom Copeland

31. Plan for the Long Run Do not be overwhelmed by the list
Develop a plan for how you will meet your goals over the long run
Make some progress each year
Do not let short-term spending defeat your goals
Review your goals annually
Copyright 2017 Tom Copeland

32. What is an IRA? An IRA is a significant tax benefit
Your IRA does not earn interest, the fund you put your money in earns interest
You then label your investment your IRA
An IRA allows you to claim tax benefits for your retirement investment
Can defer paying taxes for many years
You invest in a stock, bond, or real estate
Copyright 2017 Tom Copeland

33. How an IRA Works Make Contribution Investment Earns Interest
Can invest in almost anything
Tax deduction for investment (except Roth IRA)
Investment Earns Interest
Interest earned tax free
Withdrawal at Retirement (59 ½+)
Withdrawal of contribution and interest is taxed (except Roth IRA)
Copyright 2017 Tom Copeland

34. Importance of an IRA Significant tax benefit of IRA
Invest $5,000 a year for 20 years earning 8%
Outside IRA: $129,062 after taxes
Inside IRA: $164,743 after taxes
Plus additional tax benefit of annual contributions
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35. IRA Options - 2017 Regular/Tradit IRA Roth IRA
Income eligibility limits (MFJ $119,000 – if spouse covered by company plan; $196,000 if not)
Maximum contribution: $5,500 (age 50 + $1,000)
Tax deductible/pay taxes later
Roth IRA
Income eligibility limits (MFJ $196,000)
Maximum contribution: $5,500 (age 50 +$1,000)
Not tax deductible/no taxes later
Copyright 2017 Tom Copeland

36. IRA Options - 2 SIMPLE IRA MyRa (type of Roth IRA)
No income eligibility limits
Maximum contribution: $12,500 (age 50 + $3,000)
Tax deductible/pay taxes later
MyRa (type of Roth IRA)
Eligibility/maximum contribution same as Roth IRA
Guaranteed not to lose money/direct deposit
Copyright 2017 Tom Copeland

37. Savers Credit Tax credit for retirement contribution to any IRA
Significant tax break for low income families!
Eligibility
$62,000 – married filing jointly; $31,000 single
10%/20%/50% tax credit
Up to $2,000 contribution per person
Copyright 2017 Tom Copeland

38. The Basics of Record Keeping
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39. Do You Love Record Keeping?
Maybe not, but …
Keeping good records means big rewards!
The better your records, the lower your taxes
Copyright 2017 Tom Copeland

40. Good Records = More $
For every $10 of expenses you claim, you’ll save $3-4 in taxes
$100 of business deductions =
$30-$40 of tax savings in your pocket
Copyright 2017 Tom Copeland

41. Three-Year Rules Keep all business records for at least 3 years
The IRS can audit you back 3 years
You can amend your tax return back 3 years
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42. Track Income Report money received from: Parents Food Program
Subsidy program
Grants
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43. Track Expenses Receipt Cancelled Check Credit/Debit Card Statement
Written Record (created by provider)
Photograph
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44. Is It Deductible?
It is if it’s “ordinary and necessary” for your business
You are providing a home environment to help children learn
Parents expect you to maintain your home as a home
Anything that helps to clean, repair, or maintain your home as a home is “ordinary and necessary”
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45. House Deductions Property tax Mortgage interest Utilities
House insurance
House repairs
House depreciation
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46. Common Deductions
Play Room - toys, rug, DVD player, furniture, books, etc.
Outdoors - lawn mower, rake, fence, new house siding, etc.
Living Room - curtains, chair, lamp, ceiling fan, piano, etc.
Bathroom - towels, soap, toilet paper, rug, bathroom scale, etc.
Garage/basement - tools, freezer, garbage can, bicycles, etc
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47. How Much is Deductible? Exclusively personal use
No deduction
Exclusively business use
100% business deduction
Shared business and personal use
Use Time-Space Percentage
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48. The Time-Space Percentage
Single most important number to calculate correctly
It will be used to determine the business portion of many household items:
Property tax, mortgage interest, utilities, house insurance, house repairs, home improvements, house depreciation, rent, furniture, appliances, fence, supplies, toys, television, etc.
Copyright 2017 Tom Copeland

49. Time-Space Definition
Time Percent
How many hours are you using your home for your business?
Space Percent
How many square feet are you using in your home for business on a regular basis?
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50. Business Hours Hours children are present in home
From when first child arrives to when last child leaves
Hours children not present in home
Cleaning, activity preparation, meal preparation, parent interviews/calls, record keeping, Internet activity, etc.
Track for 2 months each year
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51. Time Percent Rules Cannot count hours away from home
Trainings, shopping, trips to library, etc.
Cannot count time twice
Provider cleaning while business children sleeping
Provider need not do the work to count the time
Provider’s spouse or own child cleans on weekends
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52. Business Space Count all rooms that are regularly used for business
Regular use = 2-3 times per week
Can count rooms even if children are not present
Laundry room, office, storage room, garage, basement
IRS Form 8829 Expenses for Business Use of Your Home
Copyright 2017 Tom Copeland

53. When Can I Deduct It? Costs less than $2,500 Costs more than $2,500
Deduct in one year
Costs more than $2,500
Depreciate (claim the deduction over a number of years)
Copyright 2017 Tom Copeland

54. New Definition of Repairs
Deduct house repairs in 1 year, regardless of the cost
Must depreciate home improvements over 39 years
New IRS rule says repairs can now include:
Replacement of roof shingles or less than 50% of windows or doors
New wood/tile floor – less than 50% of entire floor
Remodeling of kitchen/bathroom – improvement
3 bathrooms, remodel 1 = home repair
Copyright 2017 Tom Copeland

55. 50% Bonus Depreciation Rule
Bonus depreciation rule has been extended: 50% bonus for 2017
Eligible items: furniture, appliances, play equipment, office equipment, fence, driveway, home improvements (not the home)
Items must be purchased new in 2017
Computers, tvs, dvd players must be used at least 50% for business to use this rule
Copyright 2017 Tom Copeland

56. Car Expenses
Claim car trips that are “primarily” for business purposes
Keep “adequate” records of business trips
Receipts, mileage log, cancelled checks, debit/credit cards, written records, calendar notations, photographs
Do not need to keep odometer readings
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57. Standard Mileage Rate Standard mileage rate
$.535 cents per business mile
Can also deduct parking, tolls, business portion of loan interest and vehicle property tax
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58. Actual Expenses Method
Claim business portion of:
Gas, oil, repairs, car insurance, parking, tolls, depreciation on the car, car loan interest, etc.
Business portion =
Business miles
Total miles 2,000/10,000 = 20%
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59. Food Program Join the Food Program!
You are always financially better off
Reimbursements from the Food Program are taxable income
Exception: reimbursements for your own children
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60. Standard Meal Allowance
Do not need to save food receipts!
At end of year, add up all meals and snacks you served and multiply by annual standard meal allowance rate
2017 rate
$1.31 breakfast; $2.46 lunch/supper; $0.73 snack
2018 rate
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61. Standard Meal Rules All providers eligible to use this rule
Can claim up to 1 breakfast, 1 lunch, 1 supper, and 3 snacks per day/per child
Can never count meals for own children
Meals do not have to be nutritious
Keep daily record of all meals and snacks served
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62. Actual Food Cost Method
Estimate your actual food costs
Many different methods to use
Must keep all food receipts - business and personal
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63. Summary Follow these 3 key record keeping rules
Save receipts for all house expenses
Keep daily records of all meals and snacks served
Track all the hours you work in home
Particularly when children are not present
Good luck!
Copyright 2017 Tom Copeland

64. Further Information Instructor: Tom Copeland, JD 651-280-5991
No fee for answering questions
Copyright 2017 Tom Copeland