CEO Gary Romano, of Civitas Strategies, has advised thousands of small businesses, including those in the child care sector. This industry is crucial for the economy, with almost half a million employees and owners. However, it faces challenges such as being underfunded and highly regulated, leading to low profit margins and difficulty in attracting and retaining talent. One way child care providers can increase their compensation is through tax optimization, which many overlook due to a lack of knowledge and resources.
Many small child care businesses operate on thin profit margins, making it difficult for them to afford expert help in navigating complex tax regulations and laws. This results in providers missing out on valuable deductions and credits that could significantly impact their financial well-being. For example, many home-based child care providers do not deduct their home expenses, despite laws designed for their benefit. Additionally, retirement tax credits are often underutilized, even though they can cover a substantial portion of costs associated with offering benefits to employees.
An analysis of tax returns from 2018-2022 revealed that child care providers could save an average of $7,600 in mitigated taxes, translating to a 21% increase in gross revenue. This untapped potential highlights the opportunity for child care providers to increase their compensation through proper tax planning. Real-life examples further illustrate the impact of tax optimization, with some providers successfully utilizing deductions and depreciation to minimize their tax burden.
Child care business owners need to shift their mindset around taxes and take the time to understand specific rules, deductions, and credits that apply to their businesses. Advocating for themselves with tax preparers and seeking out resources to empower themselves with tax preparation can help providers maximize their returns. Business coaches, consultants, and financial service providers supporting child care businesses can integrate tax education into their services to help clients unlock their businesses’ financial potential.
Tax optimization presents a significant opportunity for child care providers to increase their compensation without depending on policy changes or advocacy efforts. By increasing access to information and support, the industry can empower providers to take advantage of the tax benefits they are entitled to, leading to a more financially stable and sustainable child care ecosystem. As the demand for quality child care continues to rise, it is essential to address the financial challenges faced by providers and leverage tax optimization to ensure the long-term viability of this critical sector. It is important to consult with a licensed professional for advice on your specific situation.
