Empowering Healthy Business: The Podcast for Small Business Owners
The Empowering Healthy Business Podcast is THE podcast for small business owners seeking to balance having a nicely profitable business, a sustainable, scalable, and salable business, lower stress levels, better work-life balance, and improved physical and emotional fitness. Yes, this is possible! Though it’s not easy. We’re here to help you navigate toward this objective.
Empowering Healthy Business: The Podcast for Small Business Owners
#41 How to Prepare Taxes for Your Small Business
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Filing taxes for your small business doesn’t have to feel overwhelming. In this episode, you’ll learn practical steps to make tax season stress-free and efficient, including:
- How to gather and organize essential financial documents
- Why your business structure matters for tax filing
- The most common small business expenses you can deduct
- When and how to pay quarterly estimated taxes
- Choosing between tax software vs. hiring a professional
- How bookkeeping support can save time and maximize deductions
By the end, you’ll have a clear roadmap for preparing taxes and avoiding costly mistakes—so you can focus more on growing your business.
Thanks for listening!
Host Cal Wilder can be reached at:
cal@empoweringhealthybusiness.com
https://www.linkedin.com/in/calvinwilder/
Intro to Child Tax Credits
Speaker 1This is the Empowering Healthy Business Podcast , and I'm your host , cal Wilder . Each episode , we'll dive into topics important to folks who want to run businesses that are both nicely profitable , sustainable and scalable , and who want to achieve balance in their lives and realize their potential inside and outside of work . This show is sponsored by SmartBooks , provider of bookkeeping and accounting for businesses . Let's get started . Hey , greg , welcome back to the show . Thanks for having me again . So what are we talking about ?
Speaker 2today . So it's summertime and everyone's kids are in camps , and I figured it'd be a good opportunity to talk about the child tax credit and the child and dependent care credits .
Speaker 1So how to deduct our kids' summer expenses on our tax return .
Speaker 2Yep , and I know from personal experience that it is very expensive , so we'll take all that we can get Absolutely so what's the high-level concept here ?
Speaker 2Yeah , so there's two kind of credits here . So you have the child tax credit and then you have the child independent care credits , right , and the child tax credit is up to $2,000 per qualifying child . So typically you know your child under the age of 17 , um , to help reduce your , your tax bill . And then you have the child independent care credit and this is for what I think most people think about . Um , you know , like , uh , kindergarten or or not kindergarten , preschool , daycare , stuff like that .
Qualifying Expenses for Dependent Care
Speaker 2And what people don't realize is that there's opportunities in that child independent care credit that you don't always think of . So hopefully , bring that to light . And with the passage of the big beautiful bill act , um , those have been adjusted slightly , uh , for taxpayers . So there is some change there this year for for people .
Speaker 1So what's the top level concept ? If you're paying for somebody to take care of your kids so you can work , Is that tax deductible ?
Speaker 2the general theory as long as you are working or you are looking for work , you and your spouse then you can deduct up to $3,000 for one child or $6,000 for two or more children , and then that is subject to a percentage , so I believe it's like 20% of your of that amount and then you get that as a tax credit . And let's keep in mind that a tax credit is a dollar for dollar reduction of your tax bill right , that a tax credit is a dollar for dollar reduction of your tax bill right , as opposed to a deduction which is taking off your taxable income . So we always want credits .
Speaker 1Okay , so let's say I make $100,000 salary , run my own small business and in the summertime my kid's out of school and I spend $5,000 on an afternoon soccer camp where we drop the kid off for a few hours , my wife and I . Then I go work and then I sometimes go pick up my kid at the end of the afternoon .
Speaker 2Yep . So at tax time you'll call up the organization . This is usually a pretty standard ask for for them and they most organizations like the Y will print out a form for you that has , like , the name , address , ein number and how much you spent on whatever like care program it was . So if you do a summer soccer camp , you know it would be , you know the $5,000 that you spent on that and that's your burden of proof , right ? You hold on to that . You give that to your tax accountant and then they will plug that into the child and dependent care credit . Now , keep in mind , the child and dependent care credit is for children up to the age of 13 or for dependents who cannot take care of themselves either because of , like , a physical or mental limitation .
Speaker 1Okay , okay . So my example is good until they hit to be a 14 . Until there and then they're supposed to take care of themselves in the afternoons , I guess .
Speaker 2And then they're on their own .
Speaker 1Yep , okay , all right . Now that seems kind of like a gray area , like there must be some rules of thumb , like if it's a four-hour
Age Limits and Special Scenarios
Speaker 1camp versus a a one hour activity . Where is it Like ? What are the as long as to ?
Speaker 2be aware of , as long as you're putting them in that um program so that you can go work Um . So if , uh , obviously , if you're putting them in a program at uh , well , I don't I , I , even if maybe you're working at night and you got to put them in a program at uh , well , I don't I , I , even if maybe you're working at night and you got to put them in like a , you know , nighttime basketball league or something Um , as long as it's for you and your spouse to go work Um . I think the nighttime situation might be a little bit harder to justify if one spouse is home , but , um , you know , during the day you get summer camps . I know that for us . You know my daughter does , does chair , and so that costs us . You know it's not a huge expense , but like 300 bucks a year . She's at after school , you know , every , every day for that Um . So that is an expense that we can take .
Speaker 2Now a lot of people will try to sneak by um like private school Um . So , like , if you pay for kindergarten um I know I mentioned kindergarten earlier , but kindergarten is a is where it stops Um , so you can have um like preschool daycare um before and after school programs . I know a lot of schools will offer like a , a before school program that you usually have to pay for . So you know , um , so that people can get to work . I know my daughter's school starts at uh , school drop-off is like nine , 15 . So you know , most people are already through a couple of meetings by then . Um . And then , uh , you know , overnight camps those , those are eligible day camps , um . So summertime is usually a big time where you know I'll be talking to clients in April and be like , oh , did your , you know , to camp this summer ? Oh , yeah , and all of a sudden it's like yeah that was so expensive .
Speaker 2Well , that's actually a deduction .
Speaker 1Okay , all right , so care for the kids so you can work is deductible , and is that on top ? And you said there's a limit to that right ? And is that on top ?
Speaker 2And you said there's a limit to that , right yeah .
Speaker 1So it's up to $3,000 for one child or $6,000 for two or more so if you have six kids , you're still limited to $6,000 . If you have six kids , then good luck .
Speaker 2You got bigger problems to fry . Okay , yeah , um , if you have six kids , the chances are you've got at least one or two that can hopefully take care of the help out . Take taking care of the others . Um , now you can also . This also applies to , like , nannies , um , that's a little bit of a gray area Technically . If you pay someone I don't know the exact limit , but I think it's over $2,000 or so a year you really should be putting them on payroll . It becomes very frustrating and not many people do it unless they have a full-time nanny in their house but that those are the rules , um , and then you would have taxes withheld . Um , you know they'd pay federal and state um payroll taxes and then you could take um , and then you could take whatever you pay them as a tax credit . I would say that if you're paying the high school student a couple times a month to watch your kids , so you can go out on a date that does not qualify .
Speaker 1Okay , I have to be legitimately working , got it yes , yes , okay , um , um , yeah , um .
Speaker 2And then obviously the other one is the , the child tax credit , which um is pretty self-explanatory . That does um . I believe that one phases out over if you make married filing joint , you're making over 400 000 , or um single , you're over 200 000 in agi . So most people get that um , it's kind of a no-brainer . It is a little bit of a shock to people when they lose it , though I had a couple of clients this year who got an unsuspecting tax bill and that was the reason
School Expenses and 529 Plans
Speaker 2.
Speaker 1So you know I moved to a town . Partly the reason I moved here was because the public school district was solid and one of my kids to get a good education , like every parent does . But when it comes to you mentioned , you know private school bills and potentially college bills . In what scenarios are , you know , private elementary and high school or college bills deductible , if at all ?
Speaker 2They are never going to be deductible , but um a few years ago the 529 plans were opened up to include not just um colleges , but um also um , um private schools . So you can use private high schools yeah , you can use a 529 plan for um in that instance , or at least I know that's true in massachusetts . I know 529 plans are state by state , so you may want to double check that .
Speaker 1But you really want to open those things like right away , when the kid's born , or maybe even before the kid's born , right ?
Speaker 2yeah , I mean if you do it when they're , you know , in sixth grade and you know you're contributing to a 529 , and then you're pulling it out a year later , it's , it's really not going to do much for you , but um yeah , you're taking a lot of market risk and anything can happen in a few years time in the market .
Speaker 1So yeah , if you're a business owner .
Speaker 2529 may may not be the most advantageous way to go . We can get into paying your kids and putting it into a Roth and then having that build over time tax-free . So there's other ways to move the money around to be a little bit more advantageous for your kids , contagious for your , for your kids , um . But if you know 529 plan is is in your future , then that's something that you definitely want to start earlier .
Speaker 1Cool . Has anything really changed significantly with the one big , beautiful bill in this area , or are we just kind of going off what we've had as guidance for the last several years from the IRS ? Going off what ?
Speaker 2we've had as guidance for the last several years from the IRS , so some of the amounts have gone up a little bit . So for lower income families who are paying for the child tax credits , child and pending care credits , you can actually deduct more . So 35% of 6,000 , which I believe I don't have those numbers in front of me , but it goes from 20% to 35% . So if you're between adjusted gross income of zero to $15,000 , then you can take 35% of the $3,000 or $6,000 that you're spending on depending care expenses . That's a pretty low number for AGI , especially in Massachusetts . So I think a lot of people are probably going to be in like the 20% . There is a phase out range between 20 and 35 , between 15,000 of AGI and 43,000 of AGI Again pretty hard to live off of . You know Massachusetts
Hiring Your Teen in Your Business
Speaker 2, um , let alone the rest of the country , at 43,000 AGI . So I'm not sure how many people will qualify for that . But there is some enhanced credits for lower income households .
Speaker 1Cool . And then one final question . I you know I hear reference in the news to a , you know , marriage penalty or marriage advantage . I always see differences in tax impact if you're married filing jointly versus married filing individually , and almost all the time it seems to make more sense to file jointly if you're married with your wife or your husband . But what other scenarios in which it makes sense to file independently ?
Speaker 2What other scenarios in which it makes sense to file independently . It's very rare that we come across a situation where it makes sense to file independently . I can probably count on one hand the amount of times that it made sense to have clients do that over the years . The marriage penalty has to do more with , like the phase outs . So you would think that , similar to the child tax credit which you know phases out at $200,000 for single filers and $400,000 for married filing joint , that makes sense , right ? You have two incomes , two people working and you think that it would double Oftentimes phase-outs for other tax credits and tax deductions . It's not doubled .
Speaker 2For the for married filing joint . It might be , you know , only like $50,000 higher . You know , say , like a hundred thousand single and 150 for married filing joint , and that's where the marriage penalty comes in because you're earning so much more income potentially with two people . But , um , you're , you're phasing out of deductions more quickly . Obviously you get things like the child tax credit and child dependent care credit . So you know it might even out a little bit , but yeah , typically . So our software actually runs that analysis and it's very rare that it makes sense to do married filing separate so , um , the care for children so that the parents can work .
Speaker 1we talked about the child independent care credit , working until the child gets to the age of 13 . Yep , but what about you know , between the age of 14 and 18 , what can be expensed for chill childcare for kids of that age ?
Speaker 2Oh , if you're a business owner , so a lot of people who are listening to this podcast , um , that's a great opportunity to potentially hire your kids and so now you can add them to payroll they can .
Speaker 1You know I mentioned , like the Roth contribution they need their income in order to contribute to a Roth right , so they need W-2 . Yep .
Speaker 2And so that's a great opportunity to add them to payroll , take a deduction , and so that's a great opportunity to add them to payroll take a deduction . At 14 years old they are eligible to work , which I think that's where the 13 age comes in to play . I don't think that's just a random number and yeah , it's a huge benefit to the taxpayer , but it's also nice for the child as well .
Speaker 1Right , because we could do a whole other episode on the benefits of employing your children . But if they're doing something for your business and you can pay them , up to what ? $13,000 , $14,000 a year , basically free of federal tax ? Yeah , and largely free tax , but maybe you have to pay a little state tax .
Speaker 2I think now you know it's like if you're going to pay them the top limit I think it's $15,000 . Now Massachusetts , you're looking at like $300 , $400 of state tax , so not a huge expense .
Speaker 1Yeah , cool , well , awesome Greg . If folks want to get in touch with you about questions about child expenses and deductibility , what's the best way for them to reach you ?
Speaker 2So best way to reach me you can reach out email , that's gread at smartbookscom . You can also go to our website smartbookstaxcom and book a meeting with me . There we are coming . I know it's still July , but almost August at this point and we're getting close to fall . So tax planning season is knocking at the door , at the door . So you know , if you're kind of worried about your taxes this year or you know not too sure how this tax law is going to affect you , we can certainly help out with that .
Speaker 1Awesome , Greg . Well , thanks so much Until next time . Talk to you later .
Episode Closing and Contact Info
Speaker 2Thanks a lot .
Speaker 1Bye , another episode in the books . Thank you so much for tuning in For show notes and more . Visit empoweringhealthybusinesscom . If you would like to have a one-on-one discussion with me or possibly engage SmartBooks to help with your business . You can reach me at cal C-A-L at empoweringhealthybusinesscom or message me on LinkedIn , where I am easy to find . Until next time . This is Empowering Healthy Business , the podcast for business owners . Signing off .
