Gary Romano, CEO of Civitas Strategies, has worked with thousands of small businesses, including those in the child care sector, which employs nearly half a million owners and caregivers. This sector is forecasted to grow by 1.3% annually, but is hindered by being underfunded and overregulated, leading to high costs and low profit margins. This results in lower than average compensation for employees, which in turn makes it challenging for businesses to recruit and retain talent.
While efforts are being made to increase compensation in the child care industry, one often overlooked avenue is tax optimization. Many small child care businesses operate on thin profit margins and struggle to afford expert help in navigating tax regulations and laws. This results in missed deductions and undervalued credits, leading to significant financial loss. Romano’s analysis of tax returns from 2018-2022 revealed that a majority of home-based child care providers do not deduct their home expenses, despite laws designed for their benefit.
Another common missed opportunity is retirement tax credits, which could help offset costs associated with offering retirement benefits to employees. Romano’s database analysis from 2022-2023 found that child care providers could potentially save $7,600 in mitigated taxes, resulting in a 21% increase in gross revenue without any policy changes. Real-life examples from Romano’s experience demonstrate the impact of tax optimization on child care providers’ financial well-being, from being taxed on their entire income to no taxable income against increased revenue.
To bridge the gap in tax optimization knowledge, child care business owners are encouraged to educate themselves on specific tax rules, deductions, and credits, and advocate for themselves with tax preparers. Business coaches, consultants, and financial service providers supporting child care businesses should integrate tax education into their offerings to help clients unlock their full financial potential. By empowering providers to take advantage of tax benefits, the industry can become more financially stable and sustainable, ultimately ensuring the long-term viability of this essential sector as the demand for quality child care continues to rise.
In conclusion, tax optimization presents a significant opportunity for child care providers to increase their compensation without relying on policy changes or advocacy efforts. It is crucial to increase access to information and support so that providers can take advantage of the tax benefits they are entitled to. By supporting positive outcomes to the financial challenges faced by providers and unlocking the potential of tax optimization, the child care sector can thrive in the long term. The article emphasizes the importance of consulting with licensed professionals for personalized financial advice.
