Home Childcare Tax Tips
- Home childcare providers should deduct all supplies.Kids Art image by Vanessa van Rensburg from Fotolia.com
Providing childcare service in the home is, and must be, treated as a business. The fees collected for childcare services are taxable income. It is a business owner's right and responsibility to find deductions to lower the business tax burden. To make the job easier, record all the expenses on a weekly basis. Label all receipts and put them in envelopes by category. Every month, make a deduction chart adding up the totals. Place the monthly envelope safely in a 10 by 13 clasp envelope. By the end of the year, filing taxes is just a matter of plugging in the numbers. Once the system is in place, the trick is knowing what is deductible. - When the home is used as a daycare facility, the wear and tear is faster than if it was not used as a care facility. For this reason, a portion of the cost of these items are depreciation deductions even if the same space also is used for personal living. To qualify for the deduction, the provider must be in the business of providing daycare, meaning you must have an applicable license and be approved for business by the state.
To calculate the deduction, a time-space percentage is used to find out the square footage of all the rooms in which the daycare business is conducted. Maximize the deduction by including areas such as the kitchen if meals are cooked for the children on a regular basis. For hours spent, calculate from the moment the first child enters until the moment that the last child leaves. Do not omit the time spent cleaning, interviewing parents, and preparing snacks and meals.
Use the total numbers to calculate the time-space percentage. Divide the number of hours used for business by 8,760 (the total number of hours in a year). Multiply this figure by the total square footage used for business. Now divide by the total square footage of the home to find out the percentage of home expenses to deduct. - Food often is the biggest daily expense when running a daycare. The actual cost of the food or a standard rate decided by the government is deductible. It is advisable to keep receipts and menus to calculate the actual costs in case they are higher than the government's rate. Members of the Department of Agriculture daycare food programs also can deduct the difference between their food cost and the reimbursement.
- Home daycare providers incur licensing and registration fees, legal fees and professional fees. As with any other business, these expenses are deductible. Items such as insurance for the business and advertising are deductible as well.
- The Internal Revenue Service (IRS) allows deductions for all ordinary and necessary expenses. All of the items bought are considered expenses. This includes toys, diapers, clothing, cribs, highchairs, strollers, and even first aid kits. These tools of the trade are all deductible.
- A deduction easily overlooked is automobile expenses. If you have a planned day trip or even when you are shopping for equipment, the mileage is deductible. Use the actual mileage or the standard mileage rate to find the deduction amount.
- Anytime courses are taken to improve the the daycare business, they are a viable deduction. A CPR training course, a class on children's nutrition or even a management course is tax deductible.
