Tax Information for Home Daycare Providers
Whether or not your home day care is licensed, you are required to report income from child care, according to the National Association for Family Child Care. You also need to provide your clients with IRS Form W-10, which discloses your taxpayer identification number and address. Although you have little leeway when it comes to reporting your earnings, you can maximize your deductions with careful record keeping.
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Start-up and Depreciation
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Business expenses that you incur during the current calendar year are deductible. Start-up expenses up to $5,000 can be deducted the first year your day care is in operation, with the exception of single items costing more that $100. Items over $100 must be depreciated over a number of years, depending on the nature of the item. Office equipment, toys, furniture and appliances typically qualify for a five to seven year depreciation period, according to the National Association for Family Child Care. Start-up expenses exceeding $5,000 must be amortized over a 180 month period.
Direct and Shared Expenses
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Direct day care expenses, such as advertising, food, art supplies, toys and equipment used solely for your business, qualify for a full deduction. Expenses shared by your household and business are deductible based on a time-space percentage. Partially deductible expenses include basic cable, cleaning supplies, computer software, home repair, property taxes, mortgage interest and home insurance, according to the Redleaf Institute.
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Calculating Shared Expenses
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It's important to know how much time you use your home for business, and how much of your home space you use for day care. Count the time you care for children, as well as the time you spend cleaning, doing paperwork, consulting with clients in person or over the phone, preparing food, meal planning and researching that is day care related. To calculate your time percentage, divide the number of hours you devote to day care in your home on a weekly basis by the number of hours in a week. Figure your space percentage by dividing the total number of square feet that you use for any facet of your business by the total number of square feet in your home. Multiply your time percentage by your space percentage to determine how much of your shared expenses you can deduct.
Record Keeping
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Record keeping is the key to getting the most possible deductions from your business and ensures that you provide your clients and the IRS with correct information. Save all your business expense receipts and keep a record of expenses that qualify for a partial business deduction. Keeping track of the income you earn from each client on a weekly basis ensures that you provide them with an accurate receipt for the calendar year. Your reported income must match the child care expenses claimed by your clients.
Considerations
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As a child care provider, you are required, by law, to provide your taxpayer identification number to each of your day care clients, according to the IRS. Traditionally, home day care providers have shared their Social Security numbers with clients for tax purposes. However, according to the Minnesota Child Care Resource and Referral Network, home day care providers concerned about privacy can apply for an employer identification number, or EIN, to share with parents instead. You qualify for an EIN number even if you are not an employer.
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References
- National Association for Family Child Care: Record Keeping for New Family Child Care Providers
- IRS: Dependent Care Provider's Identification and Certification
- Minnesota Child Care Resource and Referral Network: How to Get an Employer Identification Number
- Redleaf Institute: Family Child Care Provider Guide
- National Association for Family Child Care: Depreciation Categories
Resources
- Photo Credit Jupiterimages/Goodshoot/Getty Images
