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 be saving receipts and making 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 familiarize yourself with rules for Time/Space Percentage calculations (T/S%). This 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 you 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
- Trays/baskets/containers for toys
- Baby/Toddler gear
- Pack n’ plays, bouncers, jumpers, cribs, changing tables…
- Cots and/or nap mats
- Sheets & blankets
- 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.
- Washer & dryer
- DVD player
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?
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
- 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.
- Remodeling areas used for daycare
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
- 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
- Snow Shovels
Here are some common office-related products that you buy for your home daycare that can be written off.
- File Folders
- Receipt books
- Field trips and other activities done with daycare kids
- Car Expenses
- You can use a standard mileage rate by logging the hours you drove with daycare kids and/or to do 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
- 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)
- Fees paid to a lawyer for services rendered due to the daycare can also be deducted
- 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. By 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 for 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)
- 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 change, field trip…)
- Painting, repairing, 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 on 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 child care 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 post about running a daycare? Check out my daycare page to learn about starting or running an in-home daycare.