Home Day-Care Tax Help
The IRS uses your tax identification number to cross-reference the income you report with the child-care expenses claimed by your clients. You have the option of providing your clients with an employer identification number instead of your Social Security number, if you prefer. Although the IRS requires you to report all of your income, failing to report all of your business expenses penalizes your wallet.
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The Facts
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When you provide day-care services in your home, expenses used solely for your business are fully deductible, according to the National Network for Child Care. Other expenses that are shared by your household and your business, such as utilities, maintenance, house insurance, automobiles and electronics, are partially deductible.
Factors
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Shared expenses are deductible based on a time and space percentage, according to the Redleaf National Institute. To calculate your time percentage, divide the number of hours you use your home for business by the total number of hours in a year. Figure your space percentage by dividing the number of square feet used for your day-care 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.
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Types
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Shared expenses include items such as toilet paper, paper towels, detergent and soap, as well as utilities, house depreciation, personal property depreciation, house repairs and mortgage interest.
Items that qualify for a full deduction include toys, diapers, wipes, baby food, children's books, professional fees and any item used expressly for your business. Playground equipment and other equipment is fully deductible if used only for your day care, with expenses of more than $100 qualifying for depreciation.
Mileage for business trips is deductible based on either business use percentage or the standard mileage reimbursement, according to the IRS. The IRS set the standard mileage rate for business trips in 2010 at 50 cents.
Considerations
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As of November 2010, startup expenses up to $5,000 can be deducted the year that you open your home day care, according to the National Association for Family Child Care. Examples include advertising, supplies, smoke detectors, toys, training expenses and licensing fees.
Food expenses for day-care children are fully deductible. If you receive reimbursement for food expenses through the U.S. Department of Agriculture's Child and Adult Care Food Program, you can deduct only those food expenses that are in excess of your reimbursement.
Records
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Maintain accurate expense and income records to simplify tax filing and protect yourself in the event of an audit. Keep a separate record of income received from each client. Save and record receipts from all of your business expenses. If you purchase day-care supplies such as paper towels, food, soap, detergent and hand towels on separate sales receipts than household purchases of these same items, save both your personal and business receipts to back up your claim. Record and save utility, cable, insurance, maintenance, repair and equipment receipts. Keep mileage records for business trips to pick up supplies, for day-care outings and for training or conferences.
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References
- National Association for Family Child Care: Recordkeeping and Tax Tips
- National Network for Child Care: Tax Guidelines for Family Day Care
- Redleaf National Institute: The Time-Space Percentage
- IRS: Child Care Provider Audit Technique Guide
- IRS: IRS Announced 2010 Standard Mileage Rates
- National Association for Family Child Care: Commentary on the IRS Child Care Provider Technique Guide
Resources
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