Taxes! Ack! Everyone dislikes this topic but there are some important home daycare tax deductions that all providers in this business should know. Tax deductions are good! They reduce what you owe and isn’t that what everyone wants? You just have to make sure you are saving receipts and aware of all the things you can deduct.
When I started my home daycare business the only aspect of being self-employed that terrified me was tax time. Being self-employed means that you are not going to have state and federal taxes withheld from a paycheck, this guarantees that you will owe the IRS money for self-employment tax. To reduce this amount, you need to save receipts and make sure you are on top of all the possible tax write-offs that will make tax time less painful and costly.
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Common Home Daycare Tax Deductions
Just to be clear this is not a post about how to do your taxes. Also, the categories below are strictly for separating expenses in clear categories within this post. These may not necessarily be the categories you use on your taxes This post is about making sure you don’t miss expenses that can easily be written off. Home daycare is a unique business and because of this, you can write of things that beginning providers easily miss.
Below you will find my list of common home daycare tax deductions. There are so many deductions you can take but please remember that not all may apply to every home daycare and/or there may be some that I have missed. This is just a general list to get you thinking about what you use and how you use it in your home daycare.
Important Note: Time/Space Percentage
If you are new to home daycare please make sure that you familiarize yourself with the rules for Time/Space Percentage calculations (T/S%). This is the most important calculation for home daycare businesses. If you are not familiar with it, please read this article from Tom Copeland. Many of the items below are allowed to be used as an expense only with your T/S% applied. I’ve seen so many new providers think that they can write off 100% of things that you are actually only allowed a percentage of, like utilities or household cleaners to name a few.
If any items are used by BOTH your household and your home daycare you can only deduct the T/S% of the original purchase price.
Child Related Supplies
These are all the supplies that are directly used by the children and daycare.
- Art/Craft supplies
- Toys
- Games
- Books
- Trays/baskets/containers for toys
- Diapers
- Wipes
- Baby/Toddler gear
- Pack n’ plays, bouncers, jumpers, cribs, changing tables…
- Cots and/or nap mats
- Cups/plates/silverware
- Sheets & blankets
- Decor
- Curriculum
- Music
- Playground equipment
Make sure you are making a note on receipts if some of these items are used both by your own child and the daycare. If they are used by your child outside of daycare hours then you can only deduct the T/S% amount of the purchase price.
Furniture & Appliances
Furniture and appliance purchases can be written off as home daycare tax deductions. Some items you can write off the whole cost while others will need to have your T/S% applied. Any furniture or appliance that you use in the daycare and for personal use needs to have the T/S% applied.
- Microwave
- Washer & dryer
- Refrigerator
- Stove
- Dishwasher
- Tables
- Shelving
- Desks
- Tables
- Chairs
- Couch
- TV
- DVD player
- Etc…
What else would you add? Did you know that you can also claim the cost of service and repair contracts that come with the furniture?
Home Expenses
These are the expenses that can result from owning (or renting) and maintaining your physical residence.
- Property Tax
- Mortgage interest
- Real estate taxes
- House depreciation
- Home repairs
- Home improvement
- Home insurance
- Rent
- Utilities
- Gas, electric, garbage, phone (only if you have an exclusive daycare line), water, sewer, cable, internet
Home Improvements and Repairs
Doing some upgrades or need to make some improvements because of the daycare? You can write off a portion of these expenses.
- Fencing
- Patios
- Flooring
- Remodeling areas used for daycare
- Furnace
- Insulation
Household Supplies
These are supplies that are usually used to maintain your home or used by your household. Items that will be used in your daycare AND for personal household use. You can claim a portion of the cost of these items as an expense on your taxes by using your T/S%.
- Toilet paper
- Paper towels
- Napkins
- Paper plates
- Paper cups
- Cleaning supplies (from sprays & cleaners to vacuums & carpet cleaners)
- Dish soap
- Hand soap
- Laundry detergent
- Dryer sheets
- Ziploc bags
- Aluminum foil
- Saran wrap
- Garbage bags
- Light bulbs
- Air fresheners
- Welcome mats
- Washcloths
- Clocks
- Snow Shovels
- etc…
Office Expenses
Here are some common office-related products that you buy for your home daycare that can be written off.
- Printers
- Paper
- Envelopes
- File Folders
- Receipt books
- Pens
Other Expenses
- Activities
- Field trips and other activities done with daycare kids
- Advertising
- Car Expenses
- You can use a standard mileage rate by logging the hours you drove with daycare kids and/or doing daycare-related things. You can also keep all your receipts for car care and use the actual expense method. Parking fees also count on car expenses. If you have to pay to park while doing a daycare-related activity, like a field trip, you can write off this fee.
- Bank Fees
- Dues and Professionals Fees
- Food
- This is a MAJOR deduction! You do not have to save receipts as there is a standard meal rate available. You will need to track attendance and meals served in your record-keeping though.
- Gifts for daycare kids (up to $25 per/kid per year)
- Lawyers
- Fees paid to a lawyer for services rendered due to the daycare can also be deducted
- Taxes
- Fees paid to a tax preparation company, CPA, or for tax software can be written off as a business expense.
- Yard service
- You cannot deduct time you spend mowing/weeding but you can deduct a portion of the fee for a yard service company.
Time Spent Working Without Daycare Kids
While this isn’t a “deduction” so to speak, keeping track of these hours is SO IMPORTANT for reducing your tax liability! Sadly, it’s also something that is frequently overlooked by new providers. Keeping track of all the extra time you do daycare-related things, without kids present, can add a significant number of hours to your working hours in a year. All those extra hours can drastically increase your T/S% and save you from paying more in taxes.
Here are some activities that count towards your time:
- Planning activities
- Planning meals
- Preparing meals
- Preparing activities
- Unloading groceries from the car
- Loading & unloading dishwasher
- Laundry (daycare sheets, towels, washcloths, blankets, toys…)
- Cleaning toys
- Cleaning carpets
- Cleaning toy shelves
- Cleaning the house (areas used by daycare)
- Cleaning windows
- Cleaning up after kids leave
- Setting up playroom/activities in the morning
- Rotating or reorganizing toys
- Interviews & tours
- Phone calls/emails with parents or potential parents
- Advertising (posting online ads, updating website)
- Networking
- Reading books/online articles about home daycare
- Online research
- Online training
- Creating a website
- Preparing taxes
- Record keeping (meal logs, Attendance records, income ledger, client files)
- Creating/updating parent handbooks or contracts
- Creating forms, notices, & letters to parents (vacation, termination, contract changes, field trip…)
- Painting, repairing, and remodeling daycare areas
- Maintaining house entryways (ie Shoveling walkways & driveway)
- Cleaning out & organizing supply closets or areas
- Vacuuming car (if used for daycare)
- Baby/child-proofing daycare areas
Remember these things need to be daycare-related and happen in your daycare home. If you are shopping for groceries or taking a training class at a local facility these do not count as time working without kids because they happen outside of the daycare property. Also, you can’t count hours spent doing things you would still be doing if you didn’t have a daycare. Activities like general house cleaning, yard work, cleaning out a garage, cleaning the gutters, etc cannot be claimed as time spent because the IRS assumes you would do these things regardless of the daycare. You can only claim things that create additional work because of the daycare.
Haven’t been keeping track all year? Don’t worry! Tom Copeland (the home daycare financial guru!) has a post that explains how to find an average without tracking your activity for the whole year.
Looking for a way to keep your home daycare tax deductions organized?? This Family Child Care Record-Keeping Guide by Tom Copeland is an amazing resource for home daycare providers! It’s got a 5-star rating from childcare providers for a reason. Very throughout and helpful! Really anything by Tom Copeland is worth purchasing. Plus you can write off the cost of the materials and log the time spent reading them!
What would you add to this list??
**Please note: I’m not a tax expert or tax professional, so if you have questions about filing your taxes or how to deduct these things you should consult a tax professional or filing service. This post is meant to be helpful for expense tracking.**
Looking for more posts about running a daycare? Check out my daycare page to learn about starting or running an in-home daycare.
What if I have to buy a bigger vehicle and wouldn’t have it not been for having the daycare kids? Can I add that to the deductions for the t/s%?
Hi Devon! Good question! I believe that you can only deduct a potion of your vehicle’s loan interest, you can’t deduct a portion of your monthly car payment or down payment. The IRS doesn’t care why you buy a car so the reason behind why you buy it doesn’t affect how you claim expenses for it.
I got this advice from Tom Copeland (daycare tax guru) “If you use the actual expenses method you can claim the business portion of all expenses associated with the vehicle: gas, oil, repairs, car wash, parking, new tires, jumper cables, car loan interest, and so on. You can also depreciate the vehicle over five years. If you use the standard mileage method you can deduct parking, ferries, tolls and the business portion of car loan interest and vehicle property tax. You can never deduct a portion of your monthly car payment.” You can read more and he explains how to find the business portion of car expense on this post here.
You should definitely double check this with an accountant that specializes in daycare or reach out to Tom on his blog: http://tomcopelandblog.com/ask-tom
Oh and am I required to have a business license?
Depending on your state, you most likely do not need a general business license. However you most likely will need to be licensed by your state’s child care agency. You can check your state’s regulations here: http://www.daycare.com/states.html
Not directly related but if you are doing daycare I recommend you get a EIN number from the IRS. It’s free and you can do it online. That way you don’t have to give out your social security number to clients during tax time.
What is a T/S%?
T/S% refers to your Time/Space Percentage. It’s a very important number at tax time to home daycare providers. It’s essentially the % of the total cost that you can claim of shared expenses. Every expense shared by your household and the daycare, from electric to toilet paper, uses this percentage to determine the amount a provider can write off. For new providers it can be tricky to calculate but it’s a very important number financially I’d recommend reading up on how it is applied and how to calculate it.
You can learn more about it on Tom Copeland’s Blog.
What about leftovers? Like today I’m serving ham, but it’s leftover from what I served my family. Again, only deduct a portion of the cost of the supplies to cook food, correct?
Hi Stacy! If you are keeping track of every food receipt for all daycare meals and recording your actual food costs then you could claim a portion of your leftover meal cost. If you are taking the standard deduction for meals/snacks then you can not claim the actual cost (even just a portion) because you are using the standard deduction for every meal (even if it’s leftovers). You can’t swap between methods.
Good afternoon,
Can you please advise me if none payment of parents is a tax write off?
Hi Elizabeth! Unfortunately you can not claim nonpayment of fees as a write off. Here –> is an article from Tom Copeland (daycare tax guru) that explains this.
I see that rent is on here, I don’t pay rent, I have a mortgage. Is that deductible (factoring in t/s%?)
Hi Christa! I believe that you can only deduct the time-space % of your mortgage interest, not your mortgage payment. Your mortgage payment also includes principal on your home. You deduct the principal by depreciating your home. I recommend this article on what you can/can’t deduct when it comes to your home mortgage: http://tomcopelandblog.com/can-i-deduct-my-monthly-home-mortgage-payments
Is it true that each parent could only claim up
to 3k per child? I keep getting hit with Parents claiming up to 14k for child care (per each child of course) 🙁
What a parent can claim is based on their income and how much they paid in child care fees. I believe there is a $3K cap ($6k for multiple children) however for the daycare provider what part of the fees paid for child care that parent can claim is irrelevant. Parents have to enter the total amount paid in order to determine what they can claim on a form that is submitted with their taxes. Which means they will be reporting all of what they paid you, not just what they can claim. Regardless of what a parent can claim you still have to claim any and all income that you received. So if they paid you $14,000/year for each child then you have to claim all of that even if they can only claim a portion of that as a write off. If you are concerned they are claiming more than what they paid, make sure you are documenting every payment (photocopies of checks and deposit records) just in case the IRS comes calling. I’d definitely check with an accountant if you think something is not right on what they are claiming, they may have better advice on what exactly to do.
So my wife has a home daycare, 5 children total, 2 of them our own kids. My wife drives to pick up my daughter from school with all the daycare kids. Can we deduct that mileage even though she’s only picking up our own daughter?
Unfortunately, you can’t claim the mileage driven to pick up your daughter. The rule for being able to claim mileage is that the primary reason your are traveling has to be daycare related, that at least 51% of the reason for the trip is daycare related. If your wife was picking up another daycare child from school you could claim the mileage but if it is only your child being picked up you then can’t claim the mileage.
Hi! What if we pay our in home child care provider in cash? Can that be claimed? We paid her by check until May of last year and that was over 3k so I plan on claiming that… then she made us start bringing cash only.
Regardless of if you paid by check or cash you can claim all payments made to your provider (the IRS has a worksheet that tells you how much of that is actually deductible based on your income level). Your provider should be giving you receipts for these payments which will prove to the IRS that you actually made the payments. You will need a paper trail in case you ever get audited. Paying in cash is fine but make sure that you are getting receipts (or even an invoice could work) from her. Personally, I would save withdrawal receipts from the bank as well. Hope this helps!
Good morning
What if some of the children I’m caring for are my grandchildren? If the parents (my own children) are paying me, I can still count them as daycare “customers “? And would I be able to receive tax deductions while they are in my care?
Hi Lori! You can still count your grandchildren as part of you daycare income if your children are paying you to watch them. You can claim meals/snacks provided during times when you are being paid to watch them and count the hours you watch them as business hours.
When keeping track of mileage, what exactly is considered for daycare use? I understand the 50% +. Should you keep track of/claim mileage for things related to owning a car such as going to gas station? Going to dealership for repair? Etc? These are not really related to daycare but they are in a way, as the vehicle needs gas and service?! Confusing! Thanks for any help! We will be getting a new vehicle this weekend and want to make sure records are on spot from the get go!
Hi Tanya! I track mileage for anything that is daycare related, things like field trips, school pick up and drop off, trips to the bank to make deposits, trips to grocery store (only if more than 50% of food purchased was for DC), and driving to training classes.
As for tracking expenses there are two ways to track your vehicle expenses: The standard mileage method and the actual expense method. You can only use one method. Also if you choose the actual expense method, you can not change to the standard until you get a new vehicle. Most providers use the standard mileage method as it is much easier to track and calculate. Tom Copeland has a great article that explains the differences between each method and how to claim them, I highly recommend it —> Claiming vehicle expenses. Hope this helps!
Hello, do you have a specific way of keeping track of all expenses? Do you just use an excel sheet, or a certain software? Thanks!
I just use an excel sheet. I know many providers use KidKare (formerly Minute Menu Pro) to track expenses.
Thanks for sharing this information. It’s very helpful. Just one question in terms of things like the microwave, couch, toys, oven, etc. Do you use the amount they cost when purchased or a depreciated amount? Same for year 2, year 3, etc? If I bought the toys in year 1 and I have receipts, I deduct the full amount that year if they’re strictly for the daycare. In year 2 and beyond, do I continue to deduct that amount but not without receipts or deduct a different, depreciated amount?
Hi Jennifer! Depreciation is one of the most complicated IRS rules in my opinion! So complicated and they seem to change the rules a lot! Currently, the rule is that anything you purchase and use in your business that costs $2,500 or more you must depreciate. So only large purchases need to follow this rule. Over the years have only had to depreciate one item, a refrigerator. I have replaced both a couch and a microwave in my home daycare before but I claimed the full business cost in the year it was purchased as advised by my CPA. When it comes to toys I take the full value or the time/space % value (if they are shared by my household and daycare) in the year that I purchased them. If you do have to depreciate something, there is a formula for depreciation that tells you what amount to use each year.
I reccomend reading these posts by Tom Copeland on depreciation:
http://tomcopelandblog.com/how-and-when-you-should-depreciate-an-item
http://tomcopelandblog.com/the-basics-of-depreciation
Also if you are not a member of the Daycare .com forum (https://www.daycare.com/forum/) I highly recommend you join. They have a tax section where you can ask Tom specific questions about home daycare tax issues and he will respond. It’s very helpful!