If you employ a household employee (defined by the IRS as any domestic worker earning more than $1900 in calendar year 2014), you are responsible for the so-called "nanny taxes". By keeping track of paperwork, you'll be in a much better position come tax time next year. Nanny agency owners can also benefit from staying organized during the year whether they are filing their agency's taxes on their own or with a tax preparer.
Buy a big envelope: A 9x12 works perfectly. Label it "Taxes 2014". Keep your receipts, especially business expenses and charitable donations in the envelope through out the year. As tax documents start rolling in, collect them all in one place. After this year’s paperwork has been filed, keep copies in this envelope; should your family or nanny agency ever be audited by the IRS (they can go back as far as six years) you’ll have all of your documentation in one place for them to review.
Collect receipts: Healthcare expenses, unreimbursed business expenses, acknowledgment letters if you’ve made charitable donations, expenses related to investment activities, any operational and overhead expenses, and some recruitment expenses are all examples of receipts to stockpile. Create individual folders so that you can keep receipts organized throughout the year- making next year’s tax season a breeze.
Create a ledger: Keep your nanny's payroll organized by tracking salary and taxes paid; or if you use a nanny tax service, which will have these documents readily available to you at year end.
Document your deductible expenses: You may be squeamish about writing off your home office expenses- according to an article titled Secrets Of Claiming A Home-Office Deduction on 26 million Americans have home offices, but just 3.4 million taxpayers claim home-office deductions. Keep a separate file exclusively for home office purchases. Copy utility bills- a portion of these bills are also tax deductible.
Get help organizing: Another idea to consider is using financial management software to help manage your nanny agency’s money. By tracking income and expenses throughout the year, you’ll be able to source the comings and goings of your money. For small businesses like nanny agencies, OfficeTime is an inexpensive, user friendly program that records billable hours as you work and generates invoices and reports based on them. Quicken Home & Business is another program that allows users to manage their personal and business finances all in one place. Download credit card, investment and bank account statements as they arrive, and add notes to each expense so that you can categorize it. At the end of the year, you can run a report that shows an itemized list as well as a total spending for each category. Bonus points: Double-check these reports against your paper receipts to see if the figures match up.
By maintaining receipts and keeping track of your family or nanny agencies expenses (salary and taxes paid, charitable deductions, etc) throughout the year, you’ll be in a much better position when it’s time to prepare next years taxes.