1. The child and adult care food program
Is it worth it?

2. Presenter Disclaimer
The person presenting this workshop is NOT a trained Tax Preparer. Our intent is to examine the benefits of participating on the Child and Adult Care Food Program and how it affects provider’s income. We invite tax preparers to come to this presentation to clarify, add or dispute (if necessary) information presented here. HOWEVER, the information obtained for this presentation has been reviewed and approved by Tom Copeland (his statements and blogs), and Chris Rasmussen, Certified Public Accountant for over 30 years and continuing tax preparer.

3. True or False
Payments from USDA Child and Adult Care Food Program to my child care business for meals are revenue that must be reported on my tax return.
Because the USDA CACFP has paid me for the daycare meals I served, I cannot deduct the cost of those meals against my daycare revenue.
If my USDA CACFP payments cause my taxable income to go into a higher tax bracket, I could possibly pay more in additional taxes than what I received from USDA.
The documentation I provide to my CACFP sponsor will be allowed as proof of my food expense in the event of a tax audit by the IRS.
I can possibly subtract for food costs on my child care business in excess of what the CACFP reimburses me.

4. Conversation on face book from Liz

5. Liz also asked, “Does anyone have any experience with going from grocery $$ write-offs to being on the food program and what it did to your taxes?” Although she doesn’t say it, we wonder if she is using grocery receipts to track her grocery expenses each year. She doesn’t ever tell how she verifies her $8,000-$10,000 grocery write off each year.

7. What’s wrong with Liz’s Logic?
Liz doesn’t understand that if you claim Food reimbursement as income, you can also claim your food expenses as a deduction.
How does Liz document that she spends that much in groceries for daycare each year?
Receipts? If Liz uses this approach, how does she differentiate between household and daycare groceries in the same shopping trip? Only the daycare groceries and supplies are allowed.
Time/space usage percentage? This is not a valid allocation approach and was a source of considerable discrepancy and confusion.
The IRS proposed a solution designed to eliminate all the confusion by using meal counts to document the number of meals served to daycare children.
They further recommended that the number of meals be multiplied by the Tier I maximum rate to arrive at the total food deduction for the year. The IRS accepts this because they recommended it.

8. Back to Face Book ~ Liz: “Another thing I have been hearing is that food reimbursement checks can put you into a higher tax brackets and you can actually pay in more income taxes than the amount USDA paid you in the first place.”
Liz does not understand tax brackets and how they affect the tax payer.
“The most complicated and hard to understand thing I have ever encountered is the Internal Revenue Code”- Albert Einstein

9. Let’s Look at Tax Brackets
Married Filing Joint Taxable Income
10 % ~~ $0 to $19,050 taxable income range
12% ~~ $19,051 to $77,400 of taxable income range
22% ~~ $77,401 to $165,000 of taxable income range
If Food Program reimbursements push the provider into a higher tax
bracket, the provider will only pay the higher tax rate on the reimbursements in the
higher bracket. All other money earned by the provider’s family will remain taxed at
the lower tax rate.
If the provider’s family earned $77,400 before joining the Food Program and gets
$5,000 from the Food Program, she will pay 22% tax on the $5,000 of the Food
Program reimbursements.
The original $77,400 will still be taxed at the 10%/12%
rate, not the 22% rate. ---Tom Copeland

10. How does that look in $$?
Provider and husband filing jointly (after all income and business expenses are deducted for daycare) have a joint income of $82,400 for the year. What would their tax liability be?
Income Times rate Tax liability
$19,050 x 10% = $ 1,905.00
$58,350 x 12% = $ 7,002.00
$ 5,000 x 22% = $ 1,100.00
Total Income $82, Total Tax owed $ 10,007.00
This example is based on federal taxes only. What does it look like if we add social security tax and Minnesota Income tax on the $5,000 from the Food Program that put this family into the 22% tax bracket?

11. What about the other taxes besides federal?
Social Security Taxes on Daycare Net income = 14.3% Minnesota Married Filing Joint is 5.35% for income $0.00-$37,110 (first MN tax bracket) And the second bracket is 7.05% for income $37,111-$147,750 Estimating tax owed from the $82,400 final net income that the provider’s household earned that placed them in the higher federal tax bracket by $5,000. ONLY the $5,000 will be taxed according to the rates below: Federal Income Tax (22% tax bracket) $1, State Tax Second Bracket (7.05% on $5000 only) $ Social Security Tax 14.3% $ Total tax liability for state, federal and social security on $5,000 over $77,400 $2, From the $5,000 that placed this family into the higher tax bracket, they will have $2, more at the end of the year than they paid. Being in a higher tax bracket does not mean you pay more in taxes than what you earned.

12. Record keeping
All providers, whether or not they are on the Food Program, should save the following records to protect themselves in an audit: • Attendance records •Meal counts (including records of un-reimbursed meals) A provider on the Food Program must save these records as a requirement of being on the Food Program. If a provider loses attendance records or meal counts she can ask her Food Program sponsor for a copy. The sponsor must maintain these records for three years. The IRS can audit back only three years. A provider who is not on the Food Program must still save the same records for her tax records. Therefore, a provider who is reluctant to join the Food Program because of the record keeping requirements should realize that she will have to do much of the same record keeping on her own. Without the discipline of having to turn in monthly reports, providers not on the Food Program are less likely to keep adequate records and are more likely to run into trouble in the event of an IRS audit. Tom Copeland -
Living generates paperwork. You have children, you have records & paperwork. You buy anything you get records & paperwork. It is the world’s way of recording and doing business so it is a fact of life for all of us. Good business record keeping is the most important thing you can do to develop a financially successful business.

13. How much Is spent on meals?
These menu items are based on the Child and Adult Care Food Program Guidelines and portion sizes for a child 2-5 years of age.

15. This is money you are spending every day per child!
The daily Tier I rate for breakfast lunch and snack per child is $ The going Tier II rate for breakfast lunch and snack per child is $2.16
This is money you are spending every day per child!

16. Take Advantage of All the Financial Rewards
Good Business
As a licensed family child care provider, you have achieved higher standard than non-licensed providers. You have access to benefits that are prohibited to non-licensed providers. All business owners are responsible for recordkeeping needed to conduct and assure their integrity in filing tax returns and in cases of IRS audits. CACFP ensures a back up for three years and three months through the CACFP sponsor in case you lose your records. allows more income to providers to help with expense of doing business, including purchasing food, supplies, equipment and more daycare specific items. Thus the extra money you have can be available to pay for more deductible expenses. Expenses = Deductions on your taxes! allows more income at the end of the year to the provider’s household.
Other businesses are also subsidized by the Federal Government, including farmers oil corporations, etc. This is a way to help small independent child care business owners and promote good nutrition early to our future generation.
Take Advantage of All the Financial Rewards
Available to YOU!

17. New Meal Pattern Guidelines
If you are reluctant to participate on the CACFP because of the new meal pattern guidelines here are some great things about the menus: 1. CCNI offers ideas, recipes, and menu plans to help you with the new meal requirements. 2. CCNI will not disallow menus not served according to the new meal patterns until after October 1, The new meal pattern guides have shown healthier choices of lower sugar and whole-grain rich and encourages fresh fruits and vegetables. This is a great way to improve a child’s nutrition and establish healthy choices for life. 4. All licensed providers are required by Minnesota State law to follow the CACFP guidelines as their nutrition standards. We can help you understand and follow the meal pattern requirements and when you participate on the CACFP you will be reimbursed for your efforts.
Providers have used their CACFP participation as a selling point to recruit new families for several years

18. True or False
Payments from USDA Child and Adult Care Food Program to my child care business for meals are revenue that must be reported on my tax return. TRUE
Because the USDA CACFP has paid me for the daycare meals I served, I cannot deduct the cost of those meals against my daycare revenue. FALSE
If my USDA CACFP payments cause my taxable income to go into a higher tax bracket, I could possibly pay more in additional taxes than what I received from USDA. FALSE
The documentation I provide to my CACFP sponsor will be allowed as proof of my food expense in the event of a tax audit by the IRS. TRUE
I can possibly subtract for food costs on my child care business in excess of what the CACFP reimburses me. TRUE

19. Thank You
We hope you have a better understanding of the Benefits of the CACFP for you How the income will affect you How the tax liability will affect you How the great nutrition standards and help will benefit the children Any questions? Comments?