Home Daycare Tax Deductions

What the IRS Doesn't Want You to Know about Tax Write-offs for Your Daycare Business

One of the benefits of owning your own business is the ability to write off or deduct business expenses. As a daycare business owner you are entitled to literally hundreds of deductions that you can claim to reduce your taxes.  There are three types of deductions from which your daycare business may take advantage:

100 Percent Deductions

In order to claim a 100 percent deduction of an item or expenditure it must be something that is used exclusively by the daycare business. Examples include art supplies, business association dues, advertising, childcare software, toys and games for the daycare, postage, licensing fees, and first aid supplies.

Partial Deductions/Business Use Percent Deductible Items

When you allocate a specific portion of your home to your childcare center, you are then entitled to write off the expenses for that portion of the house as well as business expenses that occur in that portion of the home. The area of the house that qualifies must be exclusively for the use of your childcare center only and not for anything else, otherwise you are not entitled to that tax deduction.  These amounts must be calculated using the space/time formula.

The first step is to determine the number of hours per year you have spent doing childcare. This number is divided by the number of hours in a year. This is the percentage of time you have spent providing child care during the year. Next, calculate the percentage of your home used strictly for your childcare business. Multiply this percentage by the percentage of hours your have worked during the year to obtain a final percentage. For example, if you have spent $3,000 on consumables per year you will multiply that by your final percentage to obtain the amount you can claim on the consumables you have purchased.

Consumable Supplies

These are supplies that are consumed quickly and usually on a daily basis.  There are items such as paper towels, laundry detergent, paper plates, paper cups, garbage bags, dish-washing detergent, baby wipes, hand soap, lotion, napkins, etc.  These are items that are either used by the children in your care or are used more frequently due to the daycare business. If you buy these supplies strictly for child care and your family doesn't use them, then these supplies are 100% deductible. However many businesses don’t separate out items like toilet paper for daycare and toilet paper for family use and they are, therefore, partially deductible on your taxes. The amount deductible for consumables, which are not 100 percent deductibles, is determined using the space-time formula.

Using the space-time formula you can deduct the cost of utility bills, home security system fees, garbage, recycling pickup, cable or satellite television, and internet service. As with consumables, calculate the total amount spent in a year for the service, then multiply it by your time/space formula calculation to get a total deduction.

Items that must be depreciated

Long term use items are depreciable for your daycare business. These items are those that lose value and are deducted over several years. This includes such items as playground equipment, computers, audio and video equipment, books, shelving, laundry machines, and dishwashers. These items also must have only been used for business purposes.

Of course none of these deductions are possible without keeping excellent records. This is where quality childcare software comes in. You will need to at record gross receipts, food expenses and reimbursement, automobile expenses, daily records, and supplies.  Childcare software can help protect you in the case that you are audited by the Internal Revenue Service, whereas not having an efficient record keeping system can prove to be a very expensive mistake.

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