The IRS requires anyone accepting money from parents for childcare to file childcare tax returns as a business operator or self-employed operator. If you are operating a home daycare business, the federal tax code allows you a number of deductible expenses. Knowing what and how to record and use these expenses gives you enough time to organize paperwork and complete the necessary calculations required to receive all the legal tax deductions.
List for Tax Deductions for the Home Daycare:
- Business Use of Home: As a home daycare operator, you can deduct portions of the home used for both personal use and daycare. To qualify for this deduction, you must have registered your business as a home daycare, obtained a license and operated a business solely as a home daycare.
- Supplies: You can claim a tax deduction on the supplies you purchase specifically for your home daycare business. Examples of supplies include wipes, toys, diapers, and office supplies.
- Business Expense: These are expenses that go beyond supplies and must go toward your home daycare business. Examples include licensing fees, business registration fee, legal fees, insurance and advertising costs
- Mileage: Fuel cost related to your home daycare business also qualifies for tax deductions. This includes the cost of transporting children while they are under your care or fuel cost while driving to handle daycare business matters.
How to record and use these child care expenses in preparing your tax return:
- Select tax forms and information booklets from your state tax office and IRS to determine the appropriate filing status and paperwork required for your daycare
- Collect statements and receipts that document the amount of home mortgage due at the time when your home daycare started. Also, obtain records of the original price paid for home, homeowner insurance, payments for property tax and any mortgage insurance. If you rent the property, obtain receipts of the total amount paid
- Measure and calculate the portion of your home used for daycare purpose. This will enable you to calculate tax deductions for property taxes, mortgage interest, building insurance or rent deductions.
- Make a list of the equipment and items purchased to operate a daycare business and obtain the receipts.
- Collect bookkeeping information for any part-time or regular staff including taxes and salary
- Collect the receipts for home daycare maintenance, repair, gas, and vehicle loan payment information
- Collect your business bank records and daily records documenting the total amount paid to your home daycare for services.
It all comes down to keeping good records for your tax accounting professional.