MyFreeTaxes Self-Employed Tax Guide For Home-Based Child

MyFreeTaxes

Self-Employed Tax Guide

For Home-Based

Child Care Businesses

Table of Contents

INTRODUCTION ............................................................................................................................... 3

PART I: GETTING READY FOR TAX SEASON ................................................................................... 6

PART II: FILING YOUR RETURN ONLINE ........................................................................................ 55

About United Way

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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).

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.” That is, the 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 the Child Care Resource and Referral agency for subsidized care.

• Taking off too many expenses or ones that are really high — like a provider who claimed

$40,000 in cell phone expenses for themselves each year.

• 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 in this tool) 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

transportation 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 preparation of your taxes.

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.

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.

PRO TIP Keeping good

records throughout the year

will make tax preparation

easier.

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 1 Table of Contents

PART I: GETTING READY FOR TAX SEASON ................................................................................... 6

WHAT IS INCLUDED ON MY TAX FORM?.......................................................................................................................... 7

HOW MUCH MONEY DID I MAKE? ............................................................................................................................. 10

Revenue Worksheets ...................................................................................................................................... 11

HOW MUCH MONEY DID I SPEND? ............................................................................................................................ 13

Expense Worksheet ........................................................................................................................................ 14

HOW DO I INCLUDE VEHICLE COSTS? ........................................................................................................................... 16

There are two ways to deduct your vehicle expenses: ..................................................................................... 16

Vehicle Expense Worksheet ............................................................................................................................ 18

Deprecation of Your Vehicle ........................................................................................................................... 18

HOW DO I INCLUDE THE COST OF MY HOME? ............................................................................................................... 19

Indirect Home-Based Business Expenses ......................................................................................................... 23

HOW DO I HANDLE STIMULUS PROGRAM FUNDS? ........................................................................................................... 24

GREAT! I AM READY TO FILE MY TAXES. HOW DO I GET STARTED? ....................................................................................... 26

DECIDE IF YOU WANT TO FILE YOUR OWN TAXES FOR FREE OR IF YOU NEED A PAID TAX PREPARER. .............................................. 26

ONCE MY TAXES ARE COMPLETED, WHAT SHOULD I DO NEXT?............................................................................................ 28

WHAT BUSINESS RESOURCES CAN I ACCESS FOR MORE TRAINING ON TAXES AND OTHER BUSINESS TOPICS? ................................... 28

YEAR-ROUND TAX AND GENERAL BUSINESS RESOURCES .................................................................................................. 29

RESOURCE 1: MILEAGE LOG ...................................................................................................................................... 30

RESOURCE 2: CONFIDENCE IN QUALITY TAX PREP RUBRIC© FOR CHILD CARE PROVIDERS ....................................................... 31

GLOSSARY ...................................................................................................................................................... 31

RESOURCE 3: PAYROLL TAXES (FOR BUSINESSES WITH EMPLOYEES) ..................................................................................... 36

RESOURCE 4: QUARTERLY ESTIMATED TAX PAYMENTS (FOR SELF-EMPLOYED INDIVIDUALS)..................................................... 39

RESOURCE 5: WHAT TO LOOK FOR IN A BUSINESS BANK ACCOUNT? ................................................................................... 42

RESOURCE 6: HOW CAN I CREATE A SIMPLE FINANCIAL SYSTEM FOR MY BUSINESS? .............................................................. 44

RESOURCE 7: WHAT IS DEPRECIATION? ....................................................................................................................... 49

What is Included on my Tax form?

There are different types of business tax forms. Let’s go over the most common ones.

A sole proprietor or self-employed individual is both the owner

and the only employee. Income for a sole proprietorship is

reported on a Schedule C as part of your personal 1040 tax

return. If you have more than one business activity, you will need

more than one Schedule C. For example, a home-based childcare

provider who also drove for Uber needs to produce a Schedule C

for her childcare business and also a separate one for her Uber

driving.

A Limited Liability Company is a business structure that offers

protections from some liabilities and has tax flexibility. At the

time of creation and typically once a year, the LLC owner can

declare how they will be taxed. LLCs with a single owner can use

the same process as a sole proprietor, but they can also choose

to use an S-Corporation or C-Corporation process or, if there is

more than one owner, a partnership (all are described below).

An S-Corporation is a small business type where any profit is

“transferred” directly to your personal tax return (so you don’t pay

corporate taxes on it). An S-corporation uses a Form 1120S

(income tax return for S corporation) and will show the “pass

through” income to the owner on a Schedule K-1 (individual

owner shares).

A C-Corporation is often called a “regular” corporation. The C-

corporation uses Form 1120 (corporation income tax return) and

will have profit taxed as a corporation before you can claim it as

personal income (and it gets taxed again). Likely few home-based

providers will benefit from their business being taxed this way.

A partnership is formed between one or more business owners

who share the costs and the profit from the business.

Partnerships use a Form 1065 to report their earnings.

Though this guide focuses on Sole Proprietors/Self-Employed

Individuals who submit a Schedule C, there are three parts of

business tax forms that they all have in common:

• You first report your revenue (all the money you received

from your business);

• You show all your expenses (the things you paid for to

keep your business running); and

EIN vs. SSN

In the early stages of running a

sole proprietorship, most

business owners usually use

their own social security

number as the tax

identification number for the

business. This is a quick and

simple way to get your

business up and running

without having to do any

additional paperwork.

However, you can also get an

Employer Identification

Number (EIN) from the IRS.

This number functions like a

social security number for

your business. It is an

identification number issued

by the IRS specifically for your

business.

The advantage of an EIN is

that it will limit the number of

documents with your social

security number on it, which

can help you to keep your

personal identification number

safe and prevent it from being

misused. Sole proprietors

must get an EIN if they wish to

hire employees, and if you

want to open a business bank

account with most banks.

• Finally, you calculate the amount that. If it is positive, you made a profit; if negative, then

a loss.

Schedule C

Let’s take a closer look at

the Schedule C to show

where the different

sections are for reporting

data on your business.

Your tax software will

enter these numbers

based on your

submissions, but it can

be helpful to know your

way around this

important document.

Part I is where your sales

are totaled, and your cost

of goods sold is reported

so you can see your

gross profit.

Part II is where your

business expenses are

reported. There are over

a dozen categories to

help you stay organized,

such as advertising, car

and truck expenses, legal

and professional

services, rent, travel and

meal expenses, and other

costs.

This last section is where

your net profit is

calculated (Line31) by

subtracting your total

expenses (from Part II)

from the total revenue (in

Part I).

How Much Money Did I Make?

The first section of your taxes is all about revenue, that is,

how much money you made. Getting this information

may be easy if you have an accounting system. If not, no

worries, you can use the revenue worksheet below to

calculate it.

Start by gathering your records. You are likely to have

three types of records for revenue:

1099 forms — these are evidence that another business

paid you for services. Many home-based child care

businesses will receive a 1099-NEC for subsidy care payments and for participation in the Child

and Adult Care Food Program (CACFP). You will also receive a 1099-K if you received more than

$600 in business payments from apps like Square, Zelle, or PayPal.

Bank records — showing additional funds you may have received from other sources.

Your own documents — such as year-end or weekly receipts that show parents paid for care

Then fill out the revenue worksheets. Include each 1099 and revenue for each child you serve.

Also list other income, such as grants, that may not already be accounted for on a 1099.

If you received reimbursement for food costs through the Child and Adult Care Food Program,

you can report all the reimbursements under the income section of Part I of the Schedule C

using the 1099 you received. You can then deduct your food expenses in full in the next section.

PRO TIP You must include

your CACFP reimbursement

as income. However, you can

still deduct your food costs as

expenses. This will help

ensure your CACFP

reimbursements do not

increase your taxes.

Revenue Worksheets

Click the to access the digital version of this worksheet you can download and use.

1099 INCOME

1099 Payer Name Amount

Total (add all of the 1099s)

PARENT PAYMENTS & FEES (INCLUDING CASH)

Parent Total Amount Paid

Total (add all of the parent payments)

OTHER INCOME (SUCH AS GRANTS NOT ASSOCIATED WITH A 1099)

Payer Name Purpose Amount

Total (add all of them together)

TOTAL REVENUE

Total Payment Amount

Total 1099 Payments

Total Parent Payments

Total Other Payments

Total Revenue (add them all up)

PRO TIP Make sure all your

revenue records match.

That is, the amount sale

receipt to a customer

should be the same amount

they paid per your bank

records and is the amount

you report to the IRS.

How Much Money Did I Spend?

Now that you have your business income, you need to collect

your expenses, i.e., what you spent money on for your

business in 2022

You will need records of your costs, ideally

receipts showing payment for expenses, but in most cases

you can also use canceled checks, invoices, or credit card and

bank records. It is critical that any proof of an expense show:

• That you paid the expense.

• The amount you paid.

• The date you paid it.

• A description of the item purchased, or service

received.

The Mileage Log at the end of this tool can be used to track the information above.

To collect your expenses, begin by collecting all your receipts. Next, go month by month in your

records for 2022 to:

• Review your credit card bills.

• Check app-based system payments (such as Venmo, Zelle, PayPal, and Square Cash).

• Look at your bank statements and checks.

With your accumulated expenses you can now fill out the expense worksheet.

The worksheet

uses the expense categories for a Schedule C that are most relevant to home-based child care

providers, but they can also be used for any corporate or partnership tax return as well

The full amount of home expenses that are directly related to

your business can be included in the expense worksheet. The

IRS defines a direct expense as one that is “incurred

exclusively for the business and provide no personal benefit.”

Some examples of direct expenses in your home are: fixing

the bathroom used by the children, getting a new carpet for

the play area, and light bulbs for fixtures in a play area.

Indirect costs associated with your home, such as

homeowner’s insurance or your electric costs will be covered

under the section on the business use of your home below

You should hold onto all proof of payment through the tax season and at least four years after.

It’s great to have paper copies as well as electronic ones, even if that is just snapping a picture

of each with your phone.

PRO TIP The IRS

understands you may not

have a receipt for every

expense, so look closely at

one or more documents

that show the information

they need: That you paid the

expense; the amount you

paid; the date you paid it,

and a description of the

item purchased, or service

received.

PRO TIP Each year, create

a folder for each of the

expense categories above.

Throughout the year, place

receipts in the correct folder

and update your expense

sheet.

Expense Worksheet

Click the link to access the digital version of this worksheet you can download and use.

CATEGORY DESCRIPTION TOTAL EXPENSES

Advertising

Costs to promote your business including online and print ad costs,

brochures, mailers, and flyers.

Car & Truck

Expenses related to use of your vehicle for your business. You will

most likely use the total mileage calculation in the Mileage Log

resource in this document.

Contract Labor

This is for any contractors you use (workers you pay using a 1099).

If you paid a contractor $600 or more in a year, you will need to

send them a 1099 form to document the expense.

Employee

Benefit

Programs

Do you have a company health or accident insurance program? This

includes programs associated with your business (not your

personal expense) like group-term life insurance and dependent

care assistance programs.

Insurance

(other than

health)

Include your general liability insurance and workers compensation

insurance if you have employees. Don't include your health

insurance (that will be later in this table) or homeowner’s insurance

(that will be in the section on deducting the business use of your

home).

Interest Paid

Includes interest you paid directly related to your business (we’ll talk

about mortgage interest later in the section on the business use of

your home). 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 Fees &

Professional

Services

Should include any fees paid to a lawyer, accountant, or tax preparer

as well as membership fees for professional associations like the

National Association of Family Care or the National Association for

the Education of Young Children.

Office

Expenses

All office supplies, postage, cleaning supplies and personal

protective equipment, apps and software that cost less than $200

(those that are more than $200 will be under Other Expenses). Also

add in larger purchases, like computers, telephones, copiers, and

furniture that cost less than $2,500.

If any single purchase of equipment or furniture is more than $2,500

you will need to consult current depreciation rules in the What is

Depreciation? resource. In 2022, there are special depreciation rules

that will allow businesses to elect to deduct the full cost of these

higher-cost equipment. Most online tax software, including those

available through MyFreeTaxes, will walk you through using these

elections.

Pension &

Profit Sharing

Do you have a company retirement program? If so, include the

employer contributions you made for the benefit of your employees

to a pension, profit-sharing, or annuity plan (including SEP, SIMPLE,

and SARSEP plans).

Repairs &

Maintenance

Includes any repairs and maintenance of the space or equipment

you use. For example, if you need a plumber to fix the bathroom

used only by the children or if you need your work computer fixed.

Rent or Lease

(see

instructions)

For equipment rent or lease only. Costs for renting your home will

be included in the section on deducting the business use of your

home.

Supplies

Includes items you use with the children (such as art supplies),

diapers and wipes, toys, and food for snacks and meals that you

serve your children. For meals, you can use the actual expenses or

can use a standard meal and snack rate set by the IRS. The

standard rate for 2022 in all states other than AK and HI is:

breakfast $1.40; lunch $2.63; dinner $2.63; and snack $0.78. For AK,

the rates are: breakfast $2.23; lunch $4.26; dinner $4.26; and snack

$1.27. For HI, the rates are: breakfast $1.63; lunch $3.08; dinner

$3.08; and snack $0.91.

Note that this applies to home-based child care only and is equal to

the Tier 1 CACFP reimbursement rates.

Taxes &

Licenses

Such as a business registration fee or fee for licensure.

Travel & Meal

For you as part of your business, such as going to a conference or

an off-site meeting. Food for the children in your care should be in

Supplies.

Wages

For all of your business’s W-2 employees (not contractors).

Note that paying yourself is not included as wages here. You are

allowed to take an owner’s draw or salary from your self-

employment. However, paying yourself is not deductible, so you will

not report that as an expense on your tax return. The IRS considers

all income that you receive from your business as a self-employed

individual as your pay, as noted in Part I, Revenue, of the Schedule

Other Expenses

Covers anything else that is deductible but not listed, the most

common will be software or apps that cost more than $200

(otherwise they can be listed as an office expense).

This is where you will also include accessibility and financing

expenses such as screen readers, online service fees, bank and

merchant fees, and credit card processing fees.

Total

(add up all

expenses)

How do I Include Vehicle Costs?

Many home-based child care providers use their own car or van to conduct their business. This

could be as simple as the personal car you also use to purchase supplies for your business, or a

van you purchased to transport children to and from school as part of your child care business.

Vehicle costs can add up, so keeping records of costs and knowing how to deduct them is

important.

There are two ways to deduct your vehicle expenses:

> The Standard Mileage Rate provides a simple cost per mile that is used to calculate your

deduction.

> The Actual Expense method uses all the costs of your car.

Here are the pros and cons of each option:

Pros/Cons

Standard Mileage Rate

Regular (Actual Cost) Method

Pros

Easy to do

Fewer records to collect

and keep

Only need to track miles

driven for business

purposes

May result in a higher deduction,

especially if you use your car for

work a great deal.

Cons

Limited to a set rate per

mile.

Takes time to collect all the

expenses and you need to hold

onto the receipts.

Must log miles driven for business

and personal purposes.

Regardless of the method you use, you need a simple log recording the number of miles you

drove your car for related to business purposes. The log should include:

• The date.

• The distance you traveled.

• Where you went.

• The purpose (business or personal) as specifically as possible.

An example Mileage Log can be found in the resource section of this guide. There are also apps

such a Mile IQ and Everlance which can automatically track your trips and make them easier to

log. The costs of these apps can also be deducted under Other Expenses.

If you use the Standard Rate, you take the total miles you drove in the year and multiply it by the

IRS rate. In 2022, there are two rates. From January 1, 2022 to June 30, 2022, the rate is 58.5

cents per mile. Due to increased gas prices, the rate increased. From July 1, 2022 to December

31, 2022, the rate is 62.5 cents a mile.

For example, if you logged 150 business miles from January 1 to June 30, 2022 and 340

business miles from July 1 to December 31, 2022, your deduction would be:

Time

Miles

Rate

Deduction

January 1 to June 30, 2022

150

58.5 cents a mile

$87.75

July 1 to December 31, 2022

340

62.5 cents a mile

$212.50

TOTAL DEDUCTION

$300.25

Keep in mind, when you use the standard mileage rate, you can still deduct parking fees and

tolls accumulated as you are working.

If you use your car a lot for your work, you may want to use the

Actual Expense method. It requires more record keeping but could

result in a larger deduction. With the actual expense method, you will

collect receipts or other proof of payments for all expenses related

to your car. The Vehicle Expense Worksheet included below can

help you collect the total amount of your actual vehicle expenses.

If you have a dedicated work vehicle, all expenses will be business expenses.

If you use your vehicle for work and personal expenses, you will need to multiply the total of

your actual expenses by the percentage of miles driven for work. To determine this, you take

your mileage log and divide the miles driven for work by the total miles driven in the year. You

then multiply your total expenses by this percentage.

Here’s an example: A home-based child care provider logged 3,000 miles for business-related

purposes. Overall, she drove her car for work and personal reasons for 10,000 miles over the

year. She had $6,000 in actual car expenses. First, the provider will divide their miles driven for

work, 3,000, by the total miles driven, 10,000, to come up with 0.30 or 30%. She will then multiply

her total vehicle expenses of $6,000 by 30% to determine her business use of vehicle deduction,

which would be $1,800.

PRO TIP Parking

tickets and other

violation fees are

not deductible.

Here is a worksheet that you can use to log your actual vehicle expenses, which will help you

complete this portion of your Schedule C.

Vehicle Expense Worksheet

related documents

digitally!

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.

Year-Round Tax and General Business Resources

Now that you’ve filed your tax return this year, consider changes you might make to help the

process go even smoother next year! The following pages include additional resources that may

help you learn more about certain tax topics and business practices that can improve your

business operations and your tax filing experience.

Resource 1: Mileage Log

Resource 2: Confidence in Quality Tax Prep Rubric

for Child Care Providers

Resource 3: Payroll Taxes (for businesses with employees)

Resource 4: Quarterly Estimated Tax Payments (for self-employed individuals)

Resource 5: What to look for in a business bank account?

Resource 6: How can I create a simple financial system for my business?

Resource 7: What is depreciation?

Resource 1: Mileage Log

Click to access the digital version of this worksheet.

DATE

DISTANCE

LOCATION

PURPOSE

e.g. 11/2/2022

e.g. 5.5

miles

e.g Burbank Wal-Mart

e.g. Picking up supplies

TOTAL DISTANCE

(ADD UP ALL YOUR ENTRIES)

MULTIPLY BY THE IRS PER MILE RATE TOTAL EXPENSE AMOUNT

585

(1/1 through 6/30/2022)

0.625

(7/1 through 12/31/2022)

The IRS standard mileage rates for 2022 are available here:

https://www.irs.gov/newsroom/irs-increases-mileage-rate-for-remainder-of-2022

Resource 2: Confidence in Quality Tax Prep Rubric© for Child Care Providers

Luminary Evaluation Group created the Confidence in Quality Tax Prep Rubric

for Child Care

Providers so that a provider or partner can evaluate if their federal tax returns are consistent

with best practices for their program type. This rubric was informed by an analysis of a set of

child care provider tax returns. It can be used widely, especially by organizations who offer

business technical assistance to childcare providers, to ensure they are applying these

practices. Providers can also use this rubric with their paid preparer to guide tax preparation or

feel empowered to submit their own returns and save several hundred dollars on fees

The

rubric can also be used to retroactively review past submitted tax returns.

Through this opportunity for the assessment of past taxes, providers can search for errors and

amend returns for up to three years, receiving back money they overpaid in already submitted

returns. This rubric has been created under a Creative Commons CC BY-NC license allowing use

and adaption with attribution and for non-commercial purposes

There are several different terms that are associated with the tax return process

To help make

this process more understandable, we have created a glossary which includes some of those

that are most common

Disclaimer: The information in this rubric does not constitute tax advice. Individuals should always

seek professional advice or actual guidance from the Internal Revenue Service (IRS) if they have

any questions regarding their tax returns.

GLOSSARY

Money coming into your business

Revenue/Income is the total income your business makes by selling goods or delivering a

service. This will be reflected on Line 7.

Net Profit, also known as Taxable Income, is how much money is left after all your business

costs are deducted from your revenue. This will be reflected on Line 31 as a positive dollar

amount. Profit = revenue minus expenses

Money going out/costs to conduct your business

A loss is when your costs to conduct business exceeds the income that you had come in. This

is the opposite of profit, reflected on Line 31 as a negative dollar amount

Expenses refer to any amount of money that you spend on anything within your business. The

IRS categorizes allowable expenses on lines 8 through 27a.

Depreciation is a way to allocate the costs of a fixed asset over the period in which the asset is

useable to the business. You record the full transaction when the asset is bought, but the value

of the asset is gradually reduced by subtracting a portion of that value as a depreciation

expense each year. Noteworthy things that depreciate are vehicles, homes or other buildings,

furniture, and equipment. Businesses will enter their depreciation expenses on Line 13.

Money you owe as a result of doing business

Tax liability for sole proprietors is the amount of tax they are required to pay

In their case,

92.35% of their net profit is first subject to a self-employment tax of 15.3%. Then, the remaining

profit is taxed as income, at their individual tax rate. As you see, the lower your profit, the lower

your tax liability will be.

Money the government owes your business

Deductions can help reduce your tax liability.

You can deduct certain expenses which will

subtract the cost of the expenses from your taxable income

Allowable expenses are already

categorized on Lines 8 through 26. However you may have other expenses that do not fit into

those categories. Those other expenses should go on Line 27a. The result of using deductions

is to lower your tax liability (the amount of taxes you owe).

A Refund is owed to you if you paid the IRS more than you owed during the prior year. For

example, if your quarterly estimated tax payments paid during the year add up to more than you

owe when you file your tax return, then the IRS will owe you a refund The difference will come

back to you in the form of cash paid via direct deposit or check.

An inspection of your tax records

If the IRS issues an audit, they are investigating whether the financial information reported on

your taxes accurately reflects your financial records and is reported according to tax laws.

Some tax filing mistakes increase the likelihood that the IRS will select your return for review. If

your return is selected for review (audited), you will be asked to provide documentation

supporting the information you recorded on your tax return.

Confidence in Quality Tax Prep Rubric

A 2022 Form 1040 Schedule C Tax Form Rubric

LINE ENTRIES

COMMONLY

USED FOR

SMALL

BUSINESSES?

NOTES

Gross receipts (Line 1) Required

Enter all revenue earned for the year and should include all

parent fees paid, subsidy revenue, and food program

payments you received.

Cost of goods sold

(Line 4)

Use of this Line could trigger an audit alert since it would be

extremely uncommon (if ever used) in childcare.

Gross profit (Line 5)

Required

This will usually be equal to Line 1.

Advertising (Line 8)

Yes

Enter all expenses for ads, flyers, business cards, and

promotional materials.

Car and truck

expenses (Line 9)

Yes, use

caution

Providers can deduct the actual expenses of operating their

car for business (gas, oil, repairs, insurance, license plates,

tolls, parking, etc.) by calculating the percentage of time that

the vehicle is used for business.

Alternatively, they can perform the Standard Mileage rate

calculation: multiply the number of business miles driven by

58.5 cents for 1/1-6/30 and 62.5 cents for 7/1-12/31 then add

to this amount your business portion of car loan interest and

parking fees and tolls. You must be able to document how you

came to the total entered.

Commissions and fees

(Line 10)

Providers using this expense are encouraged to seek

professional advice.

Contract labor

(Line 11)

Yes, use

caution

Enter all payments made to 1099 contractors. Providers should

be mindful not to misclassify employees as contractors. For

more information on classifying workers, see When Is Someone

a Contractor or Employee?

Depletion (Line 12)

Providers using this expense are encouraged to seek

professional advice.

Depreciation (Line 13)

Yes, use

caution

Depreciation must be applied only for business use of certain

property. Providers using this expense are encouraged to

consider seeking professional advice. Review What is

Depreciation? to learn more about Depreciation.

Employee benefit

programs (Line 14)

Yes, use

caution

If you offer employee benefits, enter amounts paid for

employee benefits (i.e., health plans, supplemental insurance,

life insurance).

This is not a typical expense for home-based providers.

Providers using this expense are encouraged to seek

professional advice.

Insurance (other than

health) (Line 15)

Yes

Enter amounts paid for liability insurance and any other

business-related insurance.

Mortgage Interest

(Line 16a)

Yes

Enter amounts paid in mortgage interest on an owned

business property. For home- based providers this is likely a

part of their time/space calculation already.

Other interest

(Line 16b)

This refers to other interest such as credit card interest.

Providers using this expense are encouraged to seek

professional advice.

Legal and professional

services (Line 17)

Yes

Enter amounts paid for legal and other services such as

accounting, consulting, tax prep, etc.

Office expense

(Line 18)

Yes

Enter amounts paid for office supplies and postage.

Pension and profit

sharing

(Line 19)

This must be a company sponsored program (i.e., not the

providers’ personal or spouse’s retirement plan).

Providers using this expense are encouraged to seek

professional advice.

Vehicle Rent or lease

(Line 20a)

Yes

Enter the business portion of your vehicle rental or lease cost.

For a company car, this would be 100% of costs.

For use of personal vehicle for business-related purposes,

enter business related costs only.

Other business

property rent or lease

(Line 20b)

Yes

Enter the amounts paid for renting business property.

For home-based providers, this is likely included in their

time/space calculation already.

Repairs and

maintenance

(Line 21)

Yes

Enter amounts for repairs and maintenance made in the child

care facility.

Home-based providers should include repairs made to spaces

used for child care. If the repair is of a common area, that

would be captured in the time/space calculation.

Supplies (Line 22) Yes

Enter the amounts for materials and supplies (i.e. –

classroom supplies, learning materials, toys, diapers and

wipes, cleaning supplies, etc.)

Taxes and Licenses

(Line 23)

Yes

Enter the amounts for license fees.

Travel (Line 24a) Yes

Enter amounts for lodging and transportation associated with

business travel (i.e., conference attendance).

Deductible meals

(Line 24b)

Yes, use

caution

Enter the amounts for your meals while on business travel or

business-related meetings.

Note that this Line should not be used to claim food expenses

for children’s meals. Those expenses can go on Line 27a,

Other expenses.

Utilities (Line 25) Yes

Enter amounts paid for utilities for the child care facility.

For home-based providers, this is likely included in their

time/space calculation already.

Wages (Line 26)

Yes, use

caution

Enter the total salaries and wages for the year for W-2

employees and yourself (if you pay yourself through payroll).

For more information on paying yourself, see Paying Yourself:

A Guide for Sole Proprietors

Other expenses

(Line 27a)

Yes

Enter amounts for all other expenses that do not fall into the

above categories (i.e., professional development expenses,

membership fees, special events for the children, children’s

food expenses, etc.).

# of expenses claimed

This number should never be zero. There will always be

expenses to claim for your small business.

Total expenses (Line

28)

This is the sum of all claimed Schedule C expenses.

Business Use of Home

(Line 30)

Home-based providers operating from their primary residence

should always claim the business use of home deduction.

This applies to expenses that have a shared personal and

business use. If a provider has an expense that is 100%

business use, that expense should be fully claimed on the

applicable expense line.

Business use of home does not typically apply to center-

based programs.

Time/space

percentage (%)

To calculate time/space, view this worksheet.

Time/Space ($)

(Line 30)

Amount calculated from worksheet.

Net profit or loss

(Line 31)

This is your revenue minus expenses.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Resource 3: Payroll Taxes (for businesses with employees)

Learn how to understand your payroll tax obligations as an employer.

What are Payroll Taxes?

Payroll taxes are taxes that employees and employers must pay on wages, salaries, and tips.

The employee pays their portion of these taxes through a payroll deduction and the employer

pays the rest directly to the IRS. Typically, the employer will report payroll taxes using Form 941,

Employer’s Quarterly Federal Tax Return.

There are different types of payroll taxes:

1. Federal income tax

2. Social Security and Medicare (also known as FICA)

3. Federal Unemployment (also known as FUTA)

How much are Payroll Taxes and when are they due?

Some payroll taxes are a fixed percentage of wages, and some are dependent on the

employee’s tax bracket. There are also various due dates for these taxes. Here is a helpful chart

that describes the tax, the amount, who is responsible for paying it, and when it’s due:

Tax Type

Amount

Due Date

Responsible Party

Federal income tax

Varies, based on

individual withholding

status.

Withheld from

each paycheck

issued; paid to the

IRS from employer

monthly if you

reported $50,000

or less in taxes

July 1 – June 30 of

the previous tax

year and semi-

weekly (twice a

week) if total taxes

reported were

more than $50,000.

Employee, but

employer must

withhold based on

W-4 received.

FICA

Social Security – 12.4%

Employer and

employee each pay

6.2%

Medicare – 2.9%

Employer and

employee each pay

1.45%

FUTA

6% on the first $7,000 in

wages paid per

employee, each year.

Quarterly

Employer

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

What forms must be completed?

• Form W-4 – completed by employee to let the employer know how much payroll tax to

withhold. The amount withheld will be calculated based on their marital status, number

of dependents, and any additional withholding they may choose. This is completed once

an employee is hired, prior to their first paycheck and can be updated by the employee if

their tax situation changes.

• Form W-2- you must file Forms W-2 to report wages paid to employees. This must be

issued by January 31 to any employee with wages withheld during the previous tax year.

• Form 941 – used to report income taxes, Social Security tax, or Medicare tax withheld

from employee's paychecks and can be used to pay the employer's portion of Social

Security or Medicare tax. This is due quarterly by the last day of the month that follows

the end of the quarter:

Quarter

Months in the Quarter

Form 941 Due Date

January, February, March

April 30

April, May, June

July 31

July, August, September

October 31

October, November, December

January 31

• Form 940 – used to report any FUTA tax. The due date for filing the Form 940 is January

31.

What about part-time workers?

Part-time workers and workers hired for short periods of time are treated the same as full-time

employees for federal income tax withholding and social security, Medicare, and FUTA tax

purposes.

What about family employees?

One of the advantages of operating your own business is hiring family members. However,

employment tax requirements for family employees may vary from those that apply to other

employees. View the Family Help resource to learn about the tax requirements for family

employees.

For more information, review IRS Publication 15, Employer’s Tax Guide.

How to determine if someone is an employee or 1099 contractor?

Employees and contractors are treated very differently under federal and state law. Contractors

are considered independent business people. They pay their own employment taxes and the

employer usually has fewer legal obligations to the individual, such as providing paid time off.

Employees, on the other hand, come with greater costs, like employment taxes and benefits.

There are rules that determine if a person should be considered an employee or a contractor

and there can be harsh fines if you misclassify an employee as a contractor.

In determining if you have a contractor or employee, you should look at the three essential

elements of the definition of employment: service, wages, and direction and control.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

In determining if you have a contractor or employee you should look at the three essential

elements of the definition of employment: service, wages, and direction and control.

1. Service (Type of Relationship)– Does the person

work on a project-by-project basis (like a

contractor)? Does the person work for other

businesses or just for you?

2. Wages (Financial)— How is the person paid? For

example, is the person paid every week for a set

number of hours (which indicates an employee), or

does the work vary (like a contractor)? Do they have regular expenses that are

reimbursed (like an employee)?

3. Direction (Behavioral) — How much control do you have over their day-to-day work?

For example, do you set the requirements around their work hours, the equipment or

tools to be used, or the training needed? (If yes, then this person is likely an

employee.)

For more guidance, run through the IRS list of 20 factors that indicate if someone is a contractor

or an employee.

Disclaimer: The information contained here has been prepared by Civitas Strategies Early Start and is not intended to constitute legal, tax, or

financial advice. The Civitas Strategies Early Start team has used reasonable efforts in collecting, preparing, and providing this information,

but does not guarantee its accuracy, completeness, adequacy, or currency. The publication and distribution of this information is not

intended to create, and receipt does not constitute, an attorney-client or any other advisory relationship. Reproduction of this information is

expressly prohibited.

PRO TIP Don't use Forms

1099 to report wages and

other compensation you

paid to employees; report

these on Form W-2.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Resource 4: Quarterly Estimated Tax Payments (For Self-Employed Individuals)

What are quarterly estimated taxes?

Quarterly estimated taxes are estimated self-

employment (SE) tax payments you may need to make

to the IRS four times a year. Self-employment taxes are

taxes that freelancers, independent contractors, and

other business owners pay towards Medicare and

Social Security. W-2 employees have these taxes taken

out of their paychecks by their employer. However self-

employed people need to pay these taxes to the IRS

themselves. Typically, the deadlines for these

payments are on the 15th of April, June, and September

of the current year, and January of the following year:

Making quarterly estimated self-employment tax

payments during the year means that you pay most of

your tax during the year, as you receive income, rather

than owing one large amount at the end of the year.

These payments are based on your estimated income

for the current year.

View When to Pay Estimated Tax for more information.

Do I have to pay quarterly estimated taxes?

Self-employed individuals generally have to make

estimated tax payments if they expect to owe tax of

$1,000 or more when their income tax return is filed.

If your net earnings for the year are greater than

$15,000, you will likely owe at least $1,000 in self-employment taxes and therefore will be

required to make quarterly estimated self-employment tax payments. This figure is if you have

no dependents and no other personal credits on your tax return. If you do, then you may be able

to have a higher net earnings before you’re subject to making quarterly payments.

Payment Period

Due Date

January 1 – March 31

April 15

April 1 – May 31

June 15

June 1 – August 31

September 15

September 1 – December

January 15 of the

following year

Key Terms

Self-employment tax - a Social

Security and Medicare tax

primarily for individuals who work

for themselves. The SE tax rate is

15.3% (12.4% for social security

tax and 2.9% for Medicare tax)

and it is applied to 92.35% of your

net earnings from self-

employment.

Quarterly estimated tax -

Estimated tax is the method used

to pay your self-employed Social

Security and Medicare taxes and

income tax. Those who are not

self-employed will have an

employer withholding these taxes

for them and paying these taxes at

regular intervals to the IRS.

Because you do not have an

employer doing that for you, you

need to pay them yourself,

quarterly.

Income tax - self-employed

individuals generally must pay self-

employment tax as well as income

tax. Income tax is tax on personal

income. For a self-employed

person, their personal income is

their net profit (Line 31 of the

Schedule C). Income tax is also

paid on all other types of income

you may have (for example, capital

gains). Your income tax rate will

depend on a number of things

such as your filing status,

household income, and whether

you have any dependents.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Find more information on whether you will need to pay quarterly estimated taxes in the IRS FAQ.

To avoid making quarterly payments, you can also have your spouse withhold enough in taxes

to cover your Social Security/Medicare and income taxes. If you are single or you have a spouse

who is unemployed or self-employed, you will most likely need to file quarterly estimated taxes.

You can also make monthly estimated tax payments which may be easier to budget than paying

a larger amount quarterly.

How much do I pay each quarter?

Any self-employed business must pay a 15.3% self-employment tax (which is both the employee

and employer portions of the Medicare and Social Security taxes). The amount is calculated

with the 1040 estimated tax form. You must pay at least 90% of the taxes you owe for the

quarter to avoid paying a penalty.

To get a rough estimate of how much you owe each quarter, add up all your income and

multiply it by 20%. If you pay that 20% and it’s more than you actually owe, you will get a refund

at the end of the year. If it's too little, you will owe some additional taxes when you file your tax

return. It's unlikely that you will face a penalty if you pay greater than 20% of your income in

taxes each quarter.

For Example:

DESCRIPTION

EXAMPLE

AMOUNT

YOUR AMOUNT

Self-Employed Net Income (Schedule C, Line 31)

This is your profit after deducting business expenses from your

revenue.

$15,000

Self-Employed Income Subject to Self-Employment Tax

This is 92.35% of your net income

$13,853

($15,000*0.9235)

Self-Employment Tax

This is a 15.3% tax on the amount of your self-employed

income subject to self-employment tax.

$2,120

($13,853*0.153)

CREDITS

Self-Employment Tax Credit

Self-employed individuals receive a 50% credit on their SE tax

$1,060

($2,120*0.5)

Other credits

Enter any additional credits that you are expecting to receive

when you file your tax return, this can be the Earned Income

Tax Credit, Child Tax Credit, Child and Dependent Care Tax

Credit, American Opportunity Tax Credit

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

TAX OWED & QUARTERLY ESTIMATED TAX

Tax Owed

This is the amount you get when you subtract all expected

credits from all anticipated tax owed (this is SE tax plus any

other personal tax liability).

If this amount is over $1,000 you must make quarterly

estimated payments. If it’s below $1,000 you do not have to

make quarterly estimated payments.

$1,060

($2,120-$1,060)

Quarterly Estimated Payments

This is the amount you may be required to pay to the IRS

quarterly.

$265.00

($1,060/4)

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Resource 5: What to Look for In a Business Bank Account?

Learn about Opening a Business Bank Account.

Setting up a business account isn’t difficult and is the best first step to ensuring that you’re

clearly separating your personal and business revenue and expenses. Once set up you will

easily “see” what money is in your business versus your own pocket, and it will be easier for you

to do your bookkeeping and taxes.

This resource, and the following resource, will walk you through the basics of developing a

financial system for your business. This consists of two important steps — getting a business

bank account and adopting a bookkeeping system.

Getting a business bank account can be simple. As a sole proprietor, you have multiple options.

You are not required to have a traditional business bank account, however the best practice is

that you at least have separate accounts for your personal and business finances. You may

want to use the bank that holds your personal accounts already, or you may want to look for the

best deal for your business. We recommend you look at 2-3 account options to be sure you are

making the right choice.

What are the features of a Business Bank Account?

Typically, a business bank account requires you to have an Employer Identification Number

(EIN) and offer features that do not come with a standard personal account. Some of those

features include:

• Protection services for you and your customers

• Allows for credit card payments to you directly, not through a payment processor

• Credit options that will allow your business to grow or use in emergencies

• Helps establish your business credit

For more features and details on business bank accounts, view Open a Business Bank Account

by the U.S. Small Business Administration.

Choosing a Bank

In selecting a bank for your business account, first and foremost, relationships are important.

You want to make sure that the bank will be responsive to your needs and your questions and

provide the opportunity to grow over time. Once you’ve established a relationship with your

bank, you may be eligible for financial supports such as a business loan or a line of credit that

could help you to grow your business. Look for a bank that offers these services.

Think about how the bank treats you from the moment you first walk in the door. Do they seem

eager to talk? Does the bank employee appear to want your business? If the bank isn’t excited

to see you when you are a prospective customer, they are not very likely to be there when there’s

an issue and you need them the most.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

If a bank appears friendly and welcoming, you should consider four other points:

1. Does the bank require you to deposit a certain amount of money to open the account?

Understanding how much money may be tied up in the account is important. If the bank

requires you to keep a minimum balance, it will then be money that you cannot access easily

if you have bills to pay or want to pay yourself.

2. Are there fees associated with the account? What are they?

Banks make money by charging fees for their services, but these seemingly small fees can

add up quickly. You will need to factor them into your routine expenses.

3. How many checks can you write a month? How many deposits can you make?

Some banks will place limits on the number of checks, transactions, and deposits that can

be made during each billing period. After you reach your thresholds, the bank will charge a

fee for each transaction. Again, this is going to erode how much money you're making, so

it's imperative that you know what the fees are and whether they fit the style of your

business.

4. Will you need a debit or credit card for your business? Do you want the ability to use a

credit card that is issued by your bank?

These are important services, and again, going to the earlier point, may also come with fees,

so you want to look very closely at these.

Decision Time

Review the account options, services, and fees at two, three, or four banks, setting aside any

that don’t pass the “relationship” test. Then consider the remaining banks – what is the best

deal? Think about how much money you are willing to have tied up (i.e., the minimum balance)

and how high the fees will be per month, based on your current banking.

For example, Marta is considering two banks, Bank A and Bank B. Bank A has a higher minimum

deposit - $500, but their fees are lower. Based on the number of checks Marta writes a month

and that she doesn’t need a debit card, Marta calculates that the fees for Bank A would only be

$5 a month. Bank B has higher fees, totaling $8 a month, but no minimum deposit

The account Marta chooses will depend on her personal and business needs, finances, and

preferences.

If you don’t already have a bank account, we recommend opening an account that meets

the Bank On National Account Standards. These accounts take the stress out of banking by

charging only $5 or less per month with no overdraft or insufficient fund fees and include

convenient features like Bill Pay or free checks you can use to help pay rent and other bills

without using expensive money orders. These accounts are also great options for anyone with a

limited or challenging banking history.

You can review the full list of available Bank On certified accounts you can open online here.

Unsure how to open a bank account? Check out United Way’s My Smart Money guide to getting

a bank account for easy-to-follow instructions.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Resource 6: How Can I Create a Simple Financial System for My Business?

Learn about Basic Bookkeeping.

At the heart of any successful business, from a one-person operation to a Fortune 500 company,

is a financial accounting system.

An accounting system is critical because it lets you know where your money is, where it is

going, and how much you're making. Having this information readily available will let you pay

yourself without putting your company at risk, manage cash flow so that you always have

enough money to pay your bills, and know when it's time to expand your business.

Developing a bookkeeping system

Once you have your business bank account, you can start to think about a basic system for

bookkeeping. Bookkeeping is very important because it will help you understand where your

money is coming from (tracking revenues), where it is going (monitoring expenses), and how

much profit you're making (managing cash flow). Profit is just a fancy way of saying how much

money is left after you pay all your bills.

Step 1

Determine how you will account for funds coming in and going out.

There are two basic methods in accounting — one is an accrual method, which is more complex

and is based on when an expense or a revenue is taken on or accrued. For example, if using the

accrual method, the moment you receive your credit card bill, the amount owed would be taken

from your assets (versus when you actually pay the bill). If using the cash method, this amount

would be taken from your assets when the bill is paid. The cash method is more common for

businesses and is less challenging, as it is based on when things are paid or received.

Let’s look at revenues. Let’s say a client owes you $300. Under the accrual method, that $300 is

considered income at that time even though they haven’t paid you yet. Under the cash method,

the $300 wouldn't be considered income until the client gave you the check and you deposited

it. For most small businesses, the cash method is both simpler and more helpful because it's

going to let you know exactly when money is coming in and out of your account. This method is

more comfortable because it matches the act of balancing your checkbook.

Step 2

Determine how you will record your transactions:

Now that you've determined how you will account for funds, you need to determine how you're

going to record your transactions. For many small businesses, it is easiest to record

transactions on a sheet of paper or on a spreadsheet, such as Microsoft Excel or Google

Sheets. You want to set up some simple categories to start.

Begin with your income. Determine what the key revenue streams are for your business — that

is, the sources from which you primarily receive your money. Parent fees will likely be one

source; another might be a child care subsidy or payments from a food service program.

Perhaps there are additional funds that you receive for after-school students or grant funds.

Each one of these will be a separate revenue stream to account for.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Next, list your expenses. This may include items like payroll, cleaning, rent, repairs, supplies, and

other categories that match your business. Try to limit the number of categories — you don't

need to detail every category that might occur. Focus on the categories you have right now; you

can always add more later. With too many categories, the list could become overwhelming,

making it difficult to account for spending or revenue.

You can use this example list to categorize your income sources:

Revenue Categories

Income category #1

Income category #2

Income category #3

Fees

Other

You can use this example list to categorize your expenses:

Expenses Categories

Personnel

Taxes

Mortgage/Rent

Utilities

Car lease

Phone

Supplies

Inventory

Cleaning

Insurance

Loan payments

Bank fees

Other

Step 3

Set a schedule to record and review your transactions

You should set a time to update your books, at least every month. Start by looking at all your

revenue sources: cash, credit cards, app payment systems like Venmo or Zelle, and checks

written to you. Enter each one into your income on your spreadsheet. Next, record your

expenses. Look through your receipts, bank and credit card statements, and invoices from

people you have paid. Any of these proofs of payment can help you to not only record these

costs, but more importantly, ensure that you're recording the correct amount for each one.

Though it may seem tedious to record each transaction, it helps you track your profitability and

lets you see where your money is coming and going. Once you have recorded your revenue and

expenses for the month, you will then total each category. Subtracting your revenue from your

expenses will give you an idea of how much profit you made that month. You may want to

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

consider holding onto some of that profit, leaving it in the business for a rainy day or to help pay

your bills.

You can use this helpful template to record and track your monthly revenue:

What revenue did I receive?

Date

Description of what I

was paid

Amount Received Category

Total

You can use this helpful template to record and track your monthly expenses:

What did I pay for?

Date

Description of what I

paid for

Amount Paid Category

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Total

Bookkeeping Pro Tip:

Label your receipts so that you remember which category they belong in.

Accounting Pro Tips:

Stick to a regular schedule! Make sure you regularly update your records, whether monthly,

every other week, or every week. This will save time and headaches in the future. Leaving your

expenses and revenue to pile up will not help you. You can’t understand how your business is

doing on a moment's notice, nor will you be able to keep up with your accounting system if it

involves an intimidating pile of receipts and statements.

Consider an electronic system. It can be tedious to do accounting by hand. So, you may want to

create a simple spreadsheet or even get an online system.

When looking for online systems like QuickBooks, FreshBooks, or Xero, consider their ease of

use, cost, and complexity. Many of you with a small business may not need QuickBooks or other

more complicated systems. Perhaps a simpler, less expensive system that is easier to use

would be preferred and work better for your goals.

Make sure you keep all your records, whether you take photos or scan each receipt and

statement and save them electronically, or just store everything in a box. It is important to save

these documents in case you are audited by the IRS. It also allows you to go back and check

your information, if needed.

Disclaimer: The information contained here has been prepared by Civitas Strategies and is not intended to constitute legal, tax, or

financial advice. The Civitas Strategies team has used reasonable efforts in collecting, preparing, and providing this information, but

does not guarantee its accuracy, completeness, adequacy, or currency. The publication and distribution of this information are not

intended to create, and receipt does not constitute, an attorney-client or any other advisory relationship. Reproduction of this

information is expressly prohibited.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Resource 7: What is Depreciation?

Understanding depreciation and how it impacts your financials.

Depreciation can be confusing, but if you make any single

asset purchases or property improvements over $2,500 for

your home-based child care business, such as cars, furniture,

computers, or a new roof, you need to understand

depreciation and how it can impact your business.

Depreciation impacts the timing of revenue and expenses,

which may increase your taxes when you make a large

purchase or improvement but lowers your taxes in future

years. Typically, when you have an expense, it is fully deducted

in that year “offsetting” the same amount of earnings. For

example, let’s say your business earned $100 in revenue and

you decided to buy a $100 table for your business. You made

$100 and you get to deduct $100, so the impact on your taxes

is $0 – since the $100 was spent on a deductible expense.

Depreciation changes this offset. Let’s say you used $20,000

in revenue to purchase a new van. In this case, your taxes

would reflect the $20,000 in revenue, but you would only be

able to deduct $4,000 in the first year (we’ll explain why later).

As a result, you would have $16,000 in taxable revenue (that is,

the $20,000 - $4,000 in depreciation leaves $16,000 in

revenue) for that year. You will depreciate the rest of the van

expense in subsequent years.

In this resource, we’ll review the basics of depreciation and

how it works so you can understand when you need to prepare

for higher taxes and when you don’t.

This document should not be considered tax advice. Please

consult with an or accounting professional for specific

guidance and information regarding depreciation for your

business.

What is depreciation?

Whenever you make a business purchase that you will use for

more than one year, the Internal Revenue Service (IRS)

requires it to be depreciated. This means that you will deduct

the cost on your business taxes over time, rather than only the

year when you purchase it. Instead of getting all of the

deduction in one year, you get it slowly, over a number of

years.

Key Terms

Asset - property you acquire to help

produce income for your business.

Assets are subject to depreciation.

An asset is a single item, not a

group of items. For example, an

office sofa that costs $3,000 rather

than 10 chairs that were $300 each.

Basis – the full cost of an asset to

you, includes purchase price, sales

tax, freight, and other costs.

Depreciation - an annual income tax

deduction that allows you to recover

the cost or other basis of certain

property over the time you use the

property. Usually, you must

depreciate single item purchases

over $2,500.

Improvement – a renovation that

enhances the value of or improves

the life of property.

Repair – fixing the normal "wear

and tear" of an item, such as

replacing shingles that fell off, but

not the whole roof.

Time-Space – a calculation that

allows home-based child care

businesses to determine their

business use of certain property.

Providers must first apply time-

space to the item or property before

calculating allowable depreciation.

Learn how to calculate your time-

space here.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Depreciation can apply to many things in your business including:

• Furniture

• Appliances such as dishwashers

• Computers

• Buildings that you own and renovations

• Vehicles

What is subject to depreciation?

To determine if a purchase that you make for your business is subject to depreciation you need

to ask the following questions.

1. Is the item “ordinary and necessary” for your business? – that is, do you need this to

run your business? This is an interesting opportunity for home-based child care business

owners since it may make home improvements eligible for deductions (more on that

later in this resource).

If it is, then move to the next question. If the item is not “ordinary and necessary” for

your business, then it is a personal expense that is not deductible on your business

taxes at all.

2. Can the item last more than one year? – For example, paper towels will likely be used up

in a year, so they would not be eligible. However, a desk or a newly installed deck (for a

home-based child care provider) would be items that will last more than one year.

If the item can last more than a year, then move to the next question. If the item cannot

last more than one year, then treat it as a typical business expense that would not be

subject to depreciation.

3. Is the value more than $2,500? – Any item, even one that could last for years, that has a

value of less than $2,500 is considered a “safe harbor” and can be deducted all in one

year and without being subject to depreciation. Keep in mind, that this is a per-item limit.

For example, if you purchased 50 chairs for $100 each, even though the total bill was

$5,000, each chair is less than $2,500 so depreciation will not need to be applied.

If the value is more than $2,500, then move to the next question. If it is less than $2,500,

then treat it as a typical business expense.

What is the difference between renovation and repair? A renovation is a structural

change to the foundation, roof, floor, or exterior or load-bearing walls of a facility or

extending an existing facility to increases its floor space. If an existing facility’s function

or purpose is significantly changed, this is considered a renovation as well. A repair

service or part restores an existing building or piece of equipment to optimal working

condition. A repair does not change the function or purpose of what is being fixed. A

repair is never depreciated, but a renovation always is.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

4. Is this a repair or maintenance cost? – Costs to repair or maintain items for your

business, including your home for child care providers, can be expensed in one year and

will not be subject to depreciation. For example, let’s say you have your roof shingles

repaired and it cost $3,500. As a repair, you would still be able to deduct it in one year

and depreciation will not be applied.

If it is not a repair or maintenance cost, you’ll need to depreciate the item. If it is a repair

or maintenance cost, report it as an expense on your tax return.

Home-Based Child Care Providers

There are two other considerations in determining if an item is subject to depreciation for home-

based child care providers. First, if an item is exclusively used for your business (for example, a

business computer), 100% of the depreciation can be applied to your business. However, if an

item is mixed with personal and business use, like a new cooling system, you will need to

determine the amount of business use (and deductible amount) using the time/space

calculation.

Second, home-based child care providers can deduct the depreciation on their homes. Home

depreciation is based on the value of the home and any renovations (improvements to the home

that increase its value, such as a new deck), but not the value of the land itself. The best way to

determine the land value is through your local assessor's office and then subtract that amount

from the total value of your home. For example, if you purchased your home for $400,000 and

the assessor valued the land at $75,000, then your total depreciable amount would be $325,000.

Pro Tip: Note that when you sell a home where you operated a business, you will need to pay a

tax on the depreciation that was allowed or allowable. That means that even if you did not

utilize the deduction during the years you operated the business, you will still be liable to factor

in allowable depreciation expenses when determining your basis and gain on the sale. This is

called depreciation recapture. While a certain amount of the sale of your home will be excluded

and not counted as a capital gain, the recaptured depreciation amount will be taxable at a rate

of up to 25%. The tax rate will be based on your ordinary tax rate for the given year. Accordingly,

it is a good practice to deduct your home when you can to get the benefit of value that will be

eventually taxed. More information on this topic can be found in the IRS Q&A.

How do I depreciate an item?

Once you have identified a depreciable item, you need to determine how you can expense it.

The most basic way to figure out how much you can expense in a given year is called straight

line depreciation (though there are some other methods your tax professional may use).

In this calculation, you take the total cost of the item and divide it by the total number of years

that the IRS says is the life of the item. Here are some common useful life values from the IRS:

• Office furniture, fixtures, and equipment - 7 years

• Automobiles – 5 years

• Land improvements – 15 years

• A building (or house) used in part or whole for business – 39 years

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

You can find the current list of all life values in IRS Publication 946, here.

For example, a land improvement such as a new driveway is considered by the IRS to have a 15-

year life. So, if you paid $15,000 for the new driveway, you could deduct $1,000 a year in

depreciation for it, for 15 years ($15,000 divided by 15).

Accelerating depreciation

Another option in addition to straight line depreciation is to accelerate your depreciation faster

which allows you to expense your purchase quicker. Namely, you can accelerate your

depreciation through three special rules:

1. Section 179 depreciation is allowable for physical property used for your business more

than 50% of the time. Examples of allowable property are office equipment, furniture,

vehicles, and most other assets that are not buildings, or improvements to your building

(including a home used for business. If you are a home-based child care provider who

wants to use this depreciation method for an improvement to your home, you will need

to show 50% or greater business use.

As another example, for a vehicle, such as a van for transporting children, you will need

to show that the miles driven for business purposes are at least 50% or of the total miles

driven for a year if you are using this method (alternatively, you can depreciate the car

based on the percentage of use for business versus personal driving using straight line

depreciation).

For the 2022 tax year, you can write off up to $1.08 million in eligible Section 179

expenses. The one exception is cars that have a limit to a single-year deduction based

on weight. For vehicles under 6,000 pounds, it is $11,200. For vehicles over 6,000

pounds, but less than 14,000 pounds, it is $26,200. You also need to make sure you

prorate your costs based on the percentage of business use. For example, if you take

the total miles driven in the year for your car and 65% of the miles are for your business,

you can only depreciate 65% of the purchase price.

2. Bonus Depreciation allows you to deduct 100% of certain assets in one year without an

upper limit on the total amount you can deduct. To qualify for Bonus Depreciation, the

item needs to have a useful life of 20 years or less (so it does not apply to your home)

and be used for business 50% or more of the time. This second part is an important one

for home-based child care providers since an expense, such as a driveway paving, that

meets the criteria of having a useful life of fewer than 20 years may not qualify if the

provider's time/space percentage is less than 50%.

One exception, similar to Section 179 depreciation, is there are separate rules for

vehicles. For vehicles under 6,000 pounds, you can expense $19,200. For vehicles over

6,000 pounds, but less than 14,000 pounds, they do not have a limit. Just like Section

179 depreciation, you need to use the vehicle for your business at least 50% of the time

based on the total miles driven and the amount of depreciation must be adjusted by the

business use.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Bonus depreciation will continue to be 100% through the end of 2022. In the following

years, the percentage of depreciation allowed will decrease (starting in 2023 when you

will be limited to 80% of value) until it ends completely in December 2026.

3. The Safe Harbor for Small Taxpayers can provide another way to accelerate

depreciation. This rule comes out of the IRS Tangible Property Regulations and allows

providers to deduct repairs or improvements to the home (for home-based child care

providers) or a facility that are the lessor of $10,000 or 2% of the unadjusted basis (that

is the value of the property less the value of the land).

For example, let’s say you owned a restaurant building that was worth $350,000 and the

land is worth $50,000. The unadjusted basis would be $300,000. Two percent of the

unadjusted basis would be $6,000. So, an improvement, like adding an awning that was

$5,500, could be deducted in one year since the cost of the awning was less than

$6,000.

For home-based child care providers, you need to also include the time/space calculation. So,

let’s say a provider’s home is valued at $400,000 and the land is $65,000. Their unadjusted

basis would be $335,000. Further, let’s assume the time/space calculation shows the provider

is using the home for business 35% of the time. Now, the unadjusted basis would be $117,250

(that is 35% of $335,000). Two percent of $117,250 is $2,345. So, costs under $2,345 related to

repair or renovation could be deducted in one year rather than depreciated over time.

If you use this rule, make sure you or your preparer include a statement with your tax return

reading:

“Section 1.263(a)-3(h) De Minimis Safe Harbor Election

Your name _________________

Your address __________

EIN or Social Security Number __________

For the year ending December 31, 20__ I am electing the safe harbor election for small taxpayers

under Treas. Reg. Section 1.263(a)-3(h) for the following: (list your improvements).”

It is important to note that state limitations can vary, so depreciation, as described above, may

only apply to your federal tax return.

Record Keeping

It is critical to have clear records of your purchases for the depreciation that include what you

purchased, when, the total cost, and any indication of the amount of business use (for example

was it 100% for business or a mix of business and personal use).

It is also important to keep records of your remaining depreciation so that your tax preparer

knows to apply it to future years.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Disclaimer: The information contained here has been prepared by Civitas Strategies Early Start and is not intended to constitute legal, tax, or financial advice. The

Civitas Strategies Early Start team has used reasonable efforts in collecting, preparing, and providing this information, but does not guarantee its accuracy,

completeness, adequacy, or currency. The publication and distribution of this information is not intended to create, and receipt does not constitute, an attorney-

client or any other advisory relationship. Reproduction of this information is expressly prohibited.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Part 2 Table of Contents

PART II: FILING YOUR RETURN ONLINE ........................................................................................ 55

WHY TAX PREP SOFTWARE IS A GOOD IDEA FOR SMALL BUSINESS OWNERS & SELF-EMPLOYED ENTREPRENEURS ......................... 56

HOW TO FILE YOUR TAXES FOR FREE ........................................................................................................................... 56

HOW DOES IT WORK? .............................................................................................................................................. 56

HOW TO USE THIS GUIDE.......................................................................................................................................... 56

ACCESS MYFREETAXES.COM ..................................................................................................................................... 58

GATHER YOUR DOCUMENTATION ................................................................................................................................ 59

ENTER YOUR INCOME .............................................................................................................................................. 61

BEGIN COMPLETING YOUR SCHEDULE C ........................................................................................................................ 67

ENTER YOUR SELF-EMPLOYED INCOME ......................................................................................................................... 72

ENTER YOUR SCHEDULE C BUSINESS EXPENSES ............................................................................................................... 75

ENTER BUSINESS CAR AND TRUCK EXPENSES ................................................................................................................. 83

ENTER BUSINESS ASSETS SUBJECT TO DEPRECIATION......................................................................................................... 86

ENTERING ACTUAL CAR OR TRUCK EXPENSES ................................................................................................................. 90

ENTER YOUR “OTHER EXPENSES” ................................................................................................................................ 95

ENTER YOUR BUSINESS USE OF HOME EXPENSES .............................................................................................................. 98

QUALIFIED BUSINESS INCOME (QBI) DEDUCTION ......................................................................................................... 109

CONGRATULATIONS! .............................................................................................................................................. 112

PREPARING FOR NEXT YEAR ..................................................................................................................................... 113

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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

Entrepreneurs

Many child care 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.

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 intructions 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 allow 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.

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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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.

Filing Self -Employed Taxes Using MyFreeTaxes

Gather your

documenta�on

(showing all money

made and spent)

Access

MyFreeTaxes

. com

Indicate all forms of

income, including

your business

income

Begin comple�ng

your Schedule C

Enter your

self-employed

income

Enter your Schedule

C business expenses

Enter business car

and truck expenses

Enter business

assets subject to

deprecia�on

Enter your “other

expenses”

Enter your business

use of home

expenses

Congrats!

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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.

Filing Self -Employed Taxes Using MyFreeTaxes

Gather your

documenta�on

(showing all money

made and spent)

Access

MyFreeTaxes.com

Indicate all forms of

income, including

your business

income

Begin comple�ng

your Schedule C

Enter your

self-employed

income

Enter your Schedule

C business expenses

Enter business car

and truck expenses

Enter business

assets subject to

deprecia�on

Enter your “other

expenses”

Enter your business

use of home

expenses

Congrats!

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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 from, or you have a record keeping 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

Filing Self -Employed Taxes Using MyFreeTaxes

Gather your

documenta�on

(showing all money

made and spent)

Access

MyFreeTaxes. com

Indicate all forms of

income, including

your business

income

Begin comple�ng

your Schedule C

Enter your

self-employed

income

Enter your Schedule

C business expenses

Enter business car

and truck expenses

Enter business

assets subject to

deprecia�on

Enter your

“other

expenses”

Enter your business

use of home

expenses

Congrats!

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

• 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 which tax forms you will need.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Indicate all forms of Income

After entering basic information 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.

Filing Self -Employed Taxes Using MyFreeTaxes

Gather your

documenta�on

(showing all money

made and spent)

Access

MyFreeTaxes

. com

Indicate all forms of

income, including

your business

income

Begin comple�ng

your Schedule C

Enter your

self-employed

income

Enter your Schedule

C business expenses

Enter business car

and truck expenses

Enter business

assets subject to

deprecia�on

Enter your “other

expenses”

Enter your business

use of home

expenses

Congrats!

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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 families.

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

non-employee 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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Payer – the company that paid

you

Recipient – your business

information

TIN – tax ID number (such as

an EIN)

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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. Keep your 1099-

K(s) handy, because you will enter that income as part of your gross receipts on the Schedule C

– Income page.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

The system also lists Less Common Income as an option. This refers 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 ensure that it is taxed correctly as your self-employed income.

PRO TIP See the

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 prep system. They

can also keep your taxes

organized.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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

Filing Self -Employed Taxes Using MyFreeTaxes

Gather your

documenta�on

(showing all money

made and spent)

Access

MyFreeTaxes. com

Indicate all forms of

income, including

your business

income

Begin comple�ng

your Schedule C

Enter your

self-employed

income

Enter your Schedule

C business expenses

Enter business car

and truck expenses

Enter business

assets subject to

deprecia�on

Enter your “other

expenses”

Enter your business

use of home

expenses

Congrats!

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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.

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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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

businesses.

MyFreeTaxes Self-Employed Tax Guide: For Family 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 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 check the box.

Note – In some cases, child care providers issue a 1099 to

employees, or helpers and substitutes. 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 1: 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 click “Begin” next to Restart

Schedule C Guide and you will be guided through the completion of your Schedule C.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Enter your self-employed income

Now, back to 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.

Filing Self -Employed Taxes Using MyFreeTaxes

Gather your

documenta�on

(showing all money

made and spent)

Access

MyFreeTaxes. com

Indicate all forms of

income, including

your business

income

Begin comple�ng

your Schedule C

Enter your

self -employed

income

Enter your Schedule

C business expenses

Enter business car

and truck expenses

Enter business

assets subject to

deprecia�on

Enter your

“other

expenses

”

Enter your business

use of home

expenses

Congrats!

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

After entering your business income, you will move on to the Cost of Goods Sold 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!).

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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.

Filing Self -Employed Taxes Using MyFreeTaxes

Gather your

documenta�on

(showing all money

made and spent)

Access

MyFreeTaxes. com

Indicate all forms of

income, including

your business

income

Begin comple�ng

your Schedule C

Enter your

self-employed

income

Enter your Schedule

C business expenses

Enter business car

and truck expenses

Enter business

assets subject to

deprecia�on

Enter your “other

expenses

”

Enter your business

use of home

expenses

Congrats

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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.

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 1: 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 in

the course of your business, such as mining or

drilling. It is not typically applicable to a child care

business.

Employee Benefit

Programs

Do you have 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 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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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 includes both payments

made under a long-term care insurance contract as

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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 your

space 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

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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 but at a 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 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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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

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.

Filing Self -Employed Taxes Using MyFreeTaxes

Gather your

documenta�on

(showing all money

made and spent)

Access

MyFreeTaxes. com

Indicate all forms of

income, including

your business

income

Begin comple�ng

your Schedule C

Enter your

self-employed

income

Enter your Schedule

C business expenses

Enter business car

and truck expenses

Enter business

assets subject to

deprecia�on

Enter your “other

expenses”

Enter your business

use of home

expenses

Congrats!

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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? 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.

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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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 software will apply the standard mileage rate to your business

miles 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 depreciation of your business assets.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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 or

improvements (over $2,500). 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 to the home. An example of an improvement would be the installation of

a new fence, or a new roof would be considered an improvement.

We will guide you through the rest of the Business Depreciation screens. For a better

understanding of depreciation, view What is Depreciation?

Filing Self -Employed Taxes Using MyFreeTaxes

Gather your

documenta�on

(showing all money

made and spent)

Access

MyFreeTaxes. com

Indicate all forms of

income, including

your business

income

Begin comple�ng

your Schedule C

Enter your

self-employed

income

Enter your Schedule

C business expenses

Enter business car

and truck expenses

Enter business

assets subject to

deprecia�on

Enter your

“other

expenses

”

Enter your business

use of home

expenses

Congrats!

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

You will then indicate if the property is a listed property. A listed property is one that can be

used for both business and personal purposes.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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

https://support.taxslayer.com/hc/en-us/articles/360015909651-What-is-Listed-Property-

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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 for 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 faster ways to depreciate eligible expenses. For a better understanding of these

depreciation topics, view What is Depreciation?.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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 your relevant receipts and enter your total car expenses in the “Actual

Expenses” box.

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

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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.

Filing Self -Employed Taxes Using MyFreeTaxes

Gather your

documenta�on

(showing all money

made and spent)

Access

MyFreeTaxes. com

Indicate all forms of

income, including

your business

income

Begin comple�ng

your Schedule C

Enter your

self-employed

income

Enter your Schedule

C business expenses

Enter business car

and truck expenses

Enter business

assets subject to

deprecia�on

Enter your “other

expenses”

Enter your business

use of home

expenses

Congrats!

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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

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, 2021-June 30, 2022) standard meal and snack rates:

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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

Breakfast

Lunch/Supper

Snack

Tier 1

$1.40

$2.63

$0.78

* For HI and AK rates, see the rates sheet

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

Lunch/Supper

Snack

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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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.

Filing Self -Employed Taxes Using MyFreeTaxes

Gather your

documenta�on

(showing all money

made and spent)

Access

MyFreeTaxes. com

Indicate all forms of

income, including

your business

income

Begin comple�ng

your Schedule C

Enter your

self-employed

income

Enter your Schedule

C business expenses

Enter business car

and truck expenses

Enter business

assets subject to

deprecia�on

Enter your

“other

expenses

”

Enter your business

use of home

expenses

Congrats!

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

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!

PRO TIP As a rule of thumb

“regular use” means you

use the space two or more

times per week.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

100

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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

101

Date

Time spent on task

Task description

Total time

9/25/22

5:30-6:00pm

Returning phone calls from prospective

families

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

9/29/2022

7:00-8:00pm

Attend online training

Total number of hours for week

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.

MyFreeTaxes Self-Employed Tax Guide: For Family Child Care Providers

102

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:

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

use for child care.

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Here are sample entries:

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.

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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 & lawn care services,

telephone and cable)

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

your 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

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.

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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 Time-Space 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.

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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 child care 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:

https://support.taxslayer.com/hc/en-us/articles/360015971592-What-is-Qualified-Business-Income-QBI-

#:~:text=QBI%20stands%20for%20Qualified%20Business,Capital%20gains%20and%20losses

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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.

Child Care is not a

specified service

business

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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 15

th,

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!

Filing Self -Employed Taxes Using MyFreeTaxes

Gather your

documenta�on

(showing all money

made and spent)

Access

MyFreeTaxes

. com

Indicate all forms of

income, including

your business

income

Begin comple�ng

your Schedule C

Enter your

self-employed

income

Enter your Schedule

C business expenses

Enter business car

and truck expenses

Enter business

assets subject to

deprecia�on

Enter your “other

expenses”

Enter your business

use of home

expenses

Congrats!

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113

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.

United Way is able to provide MyFreeTaxes and the MyFreeTaxes Self-Employed

Tax Guides thanks to the generosity of our supporters.

Truist Foundation believes all people and communities should have an equal

opportunity to thrive. To address the roots of inequity, Truist Foundation has

awarded United Way Worldwide a grant providing the principal support for

MyFreeTaxes in 2022, enabling United Way to help ensure everyone obtains the tax

credits and refunds they are owed.