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This home daycare tax deductions list will help you avoid paying unnecessary taxes that you don’t owe. The business side of running a home daycare can be daunting, but it’s important to pay attention to.
Home daycare tax deductions
Operating a home daycare can be a rewarding endeavor, both personally and financially. But with the joy of nurturing children comes the responsibility of managing the financial aspects of a small business. One area where home daycare providers can benefit is by understanding and maximizing tax deductions. By taking advantage of tax breaks available specifically for home-based childcare providers, one can reduce their taxable income and subsequently, their tax liability.
The tax code recognizes the unique challenges and expenses of providing childcare in a home setting. Therefore, there are specific home daycare tax deductions list that cater to this profession. Whether it’s a portion of the mortgage or rent, toys, and learning materials, or even meals, understanding these potential deductions can significantly impact a daycare provider’s bottom line. Daycare taxes can be overwhelming, but they don’t have to be.
In this guide, we will delve into the different tax deductions available and provide tips on how to keep thorough records, ensuring that come tax time, you’re well-prepared to claim what’s rightfully yours.
Daycare business tax deductions
If you’re running a daycare business, you’re likely incurring various expenses that can be deducted on your taxes to reduce your taxable income. Here’s a list of common tax deductions that daycare providers might be eligible for:
- Home Use Deduction: If you’re running the daycare out of your home, you can deduct a portion of your:
- Mortgage interest or rent
- Property taxes
- Utilities (like electricity, water, gas, garbage, and sewer)
- Home repairs and maintenance (whatever it takes to keep your house well maintained and operational)
- Depreciation: If you’ve made improvements to your home or purchased assets for the daycare, you can often deduct their decline in value over time. (This could be something like new privacy fencing, a large play structure that costs several thousand dollars, a new roof, new windows, a kitchen remodel to add more storage and prep space, etc)
- Supplies: This includes:
- Educational materials
- Crafts and art supplies
- Dress up clothes
- Toy Containers
- Jumpers, cribs, mats, cots, pack n plays, high chairs, etc.
- Storage shelves
- Toy storage cabinets
- If you buy a bathroom scale to weigh your sweet potato harvest for your gardening lesson, even if you use that bathroom scale to weigh your husband after that, you can still claim your time/space percentage or actual business percentage use of that purchase.
- If you buy home decor to make your house look nice for daycare, that is time/space percentage deductible. You need to claim it because you made the house look nice to draw in clients. Don’t forget to be meticulous.
- Toy kitchens, climbers, tool benches, garden carts, grocery stores or other big items
- Kid dishes
- Sheets and blankets
- Music equipment
- Playground climbers, slides, tables, etc.
- Cleaning and sanitizing supplies
- Be careful in this area because this is where you are going to miss a lot of deductions that you could have taken. Don’t forget about paper towels, toilet paper, things you buy for your lesson plans, the lesson plans themselves if you buy premade ones and all the things it takes to make your business successful.
- Food: Meals and snacks provided to the children in your care. (Ones you claim on the food program as well as those you can’t). We are allowed to serve up to two meals and one snack per day and claim it on the food program, but if you serve another snack, keep track of it and claim it on your taxes above what you claim from your food program meals. If you spend it on the kids, CLAIM it!
- Professional Development: Any courses, workshops, or seminars you attend to enhance your skills or knowledge in childcare. Don’t forget to keep records of them if you do them online as well. And the hours that you spend doing them in the home need to be recorded for your time/space percentage. Also any dues to organizations that you join for childcare.
- Insurance: This can include:
- Liability insurance specific to your daycare operations
- Additional homeowners insurance due to the business use of your home
- Licenses and Permits: Fees you pay to maintain your childcare license or any other required permits.
- Advertising and Marketing: Costs related to advertising your daycare services, like flyers, online ads, or even website maintenance. If you buy a sign for the front yard to advertise or t-shirts, facebook boosting, newspaper articles and more, make sure to count that as advertising.
- Office Supplies and Expenses: Items like pens, paper, envelopes, stamps, and any software or tools you use specifically for your business. Don’t forget that printer, paper, and ink!
- Telephone and Internet: If you use a portion of your phone or internet for business purposes.
- Transportation: If you use your vehicle for business-related tasks (like picking up supplies or taking kids on a field trip), keep track of mileage, fuel, and other car-related expenses.
- Health and Safety Items: First aid kits, safety gates, outlet covers, fire extinguishers, smoke alarms, and other safety-related purchases.
- Employee Wages: If you have any employees, their wages and benefits can be deducted.
- Retirement Contributions: Contributions to a retirement plan for yourself or your employees.
- Professional Fees: Payments to accountants, consultants, or lawyers for business-related advice.
- Bank Fees: Any fees related to your business bank account or credit card.
- Gifts for daycare kids and their families.
- Any fees you pay for housekeepers or lawn maintenance companies.
It’s crucial to keep meticulous records of all your expenses and to retain receipts. Consider consulting with a tax professional or accountant who’s familiar with daycare operations, as they can guide you on maximizing your deductions while ensuring compliance with tax laws.
You also need Tom Copeland’s tax workbook for the current year. Whether you prepare your own taxes or use an accountant, you need the book to make sure you get every single deduction!
Child care tax deduction (for parents)
If you are a parent rather than a provider, you may qualify for a child care tax deduction, so don’t miss out on this credit.
For parents, the cost of childcare can be a significant expense. Fortunately, the U.S. tax code provides some relief in the form of the Child and Dependent Care Credit. This credit is designed to help working parents offset some of the costs of providing care for their children or other dependents. Here’s a breakdown of the child care tax deduction for parents:
- Child and Dependent Care Credit:
- The child must be under 13 years of age when the care is provided.
- Both parents must be working or actively looking for work (exceptions apply for parents who are full-time students or those who are incapable of self-care).
- The care must have been necessary for the parents to work or actively look for work.
- Parents must have earned income.
- Parents must provide more than half of the dependent’s support.
- Payments for care cannot be made to someone you or your spouse can claim as a dependent, or to your child who is under the age of 19.
- Parents must identify the care providers on their tax return.
- Amount of Credit:
- The credit is a percentage (ranging from 20% to 35%) of allowable childcare expenses based on adjusted gross income.
- The maximum allowable expenses you can use to calculate the credit is $3,000 for one qualifying person, or $6,000 for two or more qualifying persons.
- Where to Claim: Parents can claim this credit by completing Form 2441 (Child and Dependent Care Expenses) and attaching it to their Form 1040.
- Flexible Spending Accounts (FSAs):
- Some employers offer Dependent Care FSAs, allowing parents to set aside pre-tax dollars for eligible child care expenses.
- There’s a limit on how much can be contributed to a Dependent Care FSA each year.
- Funds from the FSA can be used to pay for the same types of child care expenses that qualify for the Child and Dependent Care Credit. However, you cannot “double-dip” and use both the tax credit and FSA funds for the same expenses.
- Tax-free Employer Benefits:
- If your employer provides dependent care benefits, you may be able to exclude these benefits from your income.
It’s essential for parents to keep detailed records and receipts for all childcare expenses and to consult a tax professional to ensure they’re maximizing available credits and deductions. Tax laws and provisions may change, so always refer to the latest IRS guidelines or a tax professional when preparing your taxes.
For more ideas on running a home daycare, check these out:
- How to Start a Home Daycare Business
- Home Daycare Lesson Plans
- Daycare Food Menu Meal Planning Guide
- How to Keep Your Daycare Organized
For more daycare provider helps, check out these resources: