This page may contain affiliate links. Learn More.

Taxes can feel overwhelming when you are running a home daycare. These tax tips for home daycare providers will help you prepare all year long, not just in April.

The last thing any provider wants is to worry about tax season, but taxes don’t have to be scary. In fact, understanding how daycare taxes work can help you save money, stay organized, and protect your business.

Understand the Time-Space Percentage

One of the biggest tax advantages for home daycare providers is the Time-Space Percentage. It sounds complicated, but it’s simply a formula that allows you to deduct part of your household expenses because you use your home for your business.

Your time-space percentage is based on two factors:

1. The portion of your home that you use for daycare
2. The amount of time you use your home for daycare, including prep and clean-up

For example, if you use 70% of your home during operating hours and you spend 12 hours a day on daycare tasks (including cleaning, cooking, planning, and paperwork), that percentage determines what part of your utilities, rent or mortgage interest, taxes, insurance, and repairs can become business deductions. Even if a space is not used exclusively for daycare, it can count if the children use it regularly.

For more information about the time space percentage, check out taking care of business.

Track Every Expense

Daycare providers spend money constantly on food, art supplies, toilet paper, toys, cleaning products, learning materials, printer ink, training classes, diapers for emergencies, and so much more. Almost everything you buy to care for children is deductible. The biggest mistake daycare providers make is failing to track their expenses.

Use any system that works:

• A notebook and an envelope for receipts
• An app or spreadsheet
• Accounting software

Write down what you bought, how much it cost, and the date. Keep receipts organized by month. When tax time arrives, you will be glad you did.

Know What Counts as a Deductible Expense

Many providers miss deductions simply because they don’t realize they qualify. Here are common tax-deductible items for child care businesses:

• Food
• Cleaning supplies
• Paper towels, toilet paper, tissues
• Preschool curriculum, books, toys, games
• Outdoor play equipment
• Safety items (baby gates, outlet covers, first aid supplies)
• Classroom furniture like shelves, cubbies, play tables, nap mats
• Arts and crafts supplies
• Training and professional development
• Software used for daycare records
• Advertising or website fees
• Mileage used to transport children or run daycare errands

If it supports the business, it probably counts. When unsure, document it anyway and ask a tax professional at filing time.

Save Receipts for Food and Supplies

The IRS requires proof of expenses, and receipts are the best proof. It’s tempting to toss them in the trash when you’re in a hurry, but that small piece of paper can be worth real money at tax time. Stay organized with your receipts.

To make it easy:

• Keep a plastic bin or drawer just for receipts
• Snap photos of receipts and store them digitally
• Write notes on receipts about what they were used for

Even groceries can count if the food is served to daycare kids.

I used to use a shoe box, now I use a drawer in my desk. Any money I spend on the daycare, I make a quick note on the receipt and stick it in the drawer for when I have time to log it.

I do a lot of shopping from Walmart, Aldi, and Amazon. My Walmart and Aldi purchases are online as well because I do grocery delivery for many reasons. But the biggest one is I am very allergic to scents, and I get sick at the store. So when I say all my shopping is online, I mean more than 99%. I do everything not to go into a store that I can.

So most of the time, my receipts are online. That makes it nice, actually, because all of my receipts are in order on the store’s login area and I don’t risk losing them. But I do have to remember what I bought my items for. We have a fitness business and a daycare, so most of my items are obvious which business they go for, and outside of that, we only spend on our own food, clothes, and family things, which are far fewer items than business expenses.

Just be mindful, if you shop online, you need a way to track what you spend on business because you may not remember in 4 or 12 months. I use Excel spreadsheets for my old school way of tracking. You do you!

Claim the Standard Meal Allowance

In addition to saved receipts, home daycare providers can use the Standard Meal Allowance. This system gives set reimbursement amounts per meal and snack. It’s especially helpful if you feed kids homemade meals or buy groceries in bulk, because you do not have to save every food receipt.

You simply record the meals you serve each child and multiply by the IRS rate. Providers on the Food Program (CACFP) are used to tracking meals already, so this method feels familiar. You can even use the Standard Meal Allowance if you are not on the Food Program.

Once you claim the standard meals, you can also add extra meals such as party food or special occasions. For instance, if you serve your families a Thanksgiving dinner, that whole meal is deductible even though it’s outside of daycare time.

Don’t Forget Wear and Tear on Your Home

When a home becomes a workplace, things wear out faster. Carpets, walls, appliances, and furniture get extra use every day. Providers can deduct part of repairs, repainting, home improvements, cleaning services, lawn care, pest control, and even depreciation of the home itself. This is where the Time-Space Percentage makes a big difference.

Think of all the extra cleaning, mopping, laundry, and broken items that wouldn’t happen without daycare. If children use it, it has business value.

And, also keep in mind that if a child tears a hole in your couch, the expense to replace or repair it is 100% deductible, not time time-space percentage. If it is directly caused by the business, you can deduct 100%. Another example might be repainting because someone took a sharpie to the wall. Regular wear and tear is part your family and part your business, but direct damage is repair and maintenance.

Keep Mileage Records

If you transport children, run to the store for supplies, visit playgrounds, or attend required training, those miles can be deducted. To count mileage, you need a log with the date, destination, and miles traveled.

A simple notebook in your car works fine. There are also apps that track mileage automatically. The miles add up quickly over a year, and many providers forget to claim them.

Track Income Carefully

Even if parents pay in cash, that income must be reported. Keep records of:

• Weekly payments
• Deposits
• Late fees
• Registration fees
• Supply fees

A simple payment ledger or spreadsheet works well. Some providers use online systems that track parent payments automatically, but pen-and-paper works too. The goal is accuracy and consistency.

Save for Taxes Year-Round

Home daycare providers often pay estimated quarterly taxes. If you owe money each year, setting aside a small percentage from every weekly payment makes tax season stress-free.

Many providers put 15–20% into a separate savings account so it’s ready when needed. It is much easier to save a little all year than to come up with a large payment in April. Plus, you will avoid the penalty if you owe over a certain amount and you haven’t paid in.

Hire a Tax Professional Who Understands Daycare

Not all tax preparers understand home daycare rules. A professional who specializes in child care taxes can help you avoid mistakes and maximize deductions. They understand the Time-Space Percentage, which expenses count, and how to handle depreciation and meal allowances. Good tax advice usually saves far more money than it costs.

If you want to do your taxes yourself, be very sure you know what you are doing, but don’t try it without the tax workbook. This thing is a lifesaver! It will walk you through the steps you need to take.

Stay Legal and Protect Yourself

Taxes are part of running a real business, and being organized protects you if the IRS ever asks questions. Keep your records for at least three years. Store receipts, mileage logs, meal counts, expense lists, parent payment records, and your tax return somewhere safe. If you are ever audited, you will already have everything you need.

Make Recordkeeping Part of Your Routine

Tax organization doesn’t have to take a lot of time. Five minutes a day or one hour a week is enough. It is easier to record two receipts today than to search for hundreds later. Build simple habits:

• Enter expenses weekly
• Put receipts in one spot
• Record meals and attendance daily
• Write mileage in your log at the end of a trip

Future-you will be very thankful.

Running a Daycare Is Real Business

Home daycare providers work long hours and give so much of themselves. Even though the business is run from home, it is still a professional child care program. That means taxes are part of the job. Learning how daycare taxes work helps you feel confident, organized, and financially stable. The more you understand, the more money you keep in your pocket.

Tax season doesn’t have to be frightening. With good records, smart deductions, and the right help when needed, home daycare taxes can be manageable—and even beneficial. Every dollar you save helps your business grow, supports the families you serve, and rewards you for the important work you do.

Printable Checklist: Deductible Daycare Expenses

✅ Save this list
✅ Check off items as you buy them
✅ Keep receipts or digital photos of receipts

HOUSEHOLD & UTILITIES (partial deduction using Time–Space %)

• Rent or mortgage interest
• Property taxes
• Homeowners or renters insurance
• Gas, electric, water, trash service
• Home maintenance and repairs
• Cleaning supplies and cleaning services
• Pest control
• Internet service
• Cell phone portion used for daycare business
• Home security system or cameras
• Lawn care (if yard is used for daycare)
• Snow removal
• Depreciation of home

FOOD & KITCHEN

• Groceries for daycare meals and snacks
• Paper plates, cups, napkins, plastic silverware (if used for daycare)
• Dish soap, sponges, towels
• Food storage containers
• High chairs or booster seats
• Kitchen equipment used for daycare meals (toaster, slow cooker, blender, fridge portion)
• CACFP-approved meal supplies

CLEANING & SANITIZING

• Paper towels
• Toilet paper
• Tissues
• Soap & hand sanitizer
• Laundry detergent
• Bleach and disinfecting wipes
• Mop heads, vacuum bags, brooms
• Diaper-changing supplies (liners, gloves, changing pad covers)

LEARNING MATERIALS

• Books
• Puzzles
• Games
• Flashcards
• Curriculum subscriptions
• Learning posters or wall décor
• Music CDs or online music services used for daycare

ART & CRAFT SUPPLIES

• Construction paper
• Markers, crayons, paint, glue
• Scissors
• Stickers, beads, pipe cleaners, pom poms
• Cotton balls, glitter, googly eyes
• Play dough and ingredients to make homemade dough
• Sensory bin materials

TOYS & GROSS MOTOR EQUIPMENT

• Dolls, cars, blocks, pretend food, puppets
• Outdoor play equipment (swings, slides, climbers)
• Ride-on toys or push toys
• Sand, water tables, balls, parachutes
• Sensory bins or sorting toys
• Replacement batteries for toys

CLASSROOM & FURNITURE

• Shelving and cubbies
• Child-sized tables and chairs
• Nap mats, cots, pack-and-plays
• Rugs
• Baby gates
• Storage bins or organizers

SAFETY ITEMS

• First aid supplies
• Baby gates and cabinet locks
• Outlet covers
• Thermometers
• Smoke detectors and fire extinguishers
• Backup sump pump, dehumidifier, or fans (if required for safe environment)

OFFICE & ADMIN SUPPLIES

• Printer ink & paper
• Pens, notebooks, clipboards, planners
• Computer or laptop portion used for business
• Software or apps for daycare management
• Mileage to training, store, field trips, bank, etc.
• Stamps & envelopes
• Website costs and domain hosting
• Business cards and flyers

TRANSPORTATION (mileage or actual expenses)

• Transporting children
• Driving to trainings or workshops
• Driving to buy supplies or deposit tuition payments

✅ Record date, destination, purpose, and miles.

PROFESSIONAL COSTS

• CPR/First Aid training
• Background checks
• Licensing fees
• CACFP food program costs not reimbursed
• Professional organization memberships
• Legal or tax prep fees
• Childcare conferences & continuing education

BUSINESS INSURANCE

• Liability insurance for daycare
• Bonding insurance (if applicable)
• Business portion of homeowners or renters insurance

REPAIRS & REPLACEMENTS

• Fixing broken toys or furniture
• Replacing worn-out daycare items
• Painting rooms used by daycare
• Carpet cleaning

OUTDOOR & YARD

• Fence repair or installation
• Outdoor toys or play equipment
• Gardening supplies if children garden as part of curriculum

✅ BONUS TIP:
If children use it, eat it, play with it, learn from it, or make a mess on it… there’s a good chance it’s deductible.