Home Daycare Taxes

An in-home daycare provides opportunity for many tax deductions. Stringent record keeping and basic tax knowledge can make your annual filing less hectic and more relaxed.

Self Employment Tax

In-home daycare providers are self-employed. Therefore, they must pay their own Social Security and Medicare taxes. These are easily computed on the IRS's Schedule SE.

Employee Tax

Home daycare providers usually do not have employees. But some centers may use substitute teachers, who may be employees or subcontractors. Thus, employment taxes are either paid or reported.

Direct Business Deductions

Costs associated with a business phone line, supplies or toys are deductible on the IRS Schedule C. Detailed monthly record-keeping of all shared and direct expenses is required.

The Time-Space Percentage

Multiplying the percentage of the year (time) spent operating your daycare by the percentage of your home's square footage (space) used as a daycare, produces a percentage that is applicable to all shared household and business expenses, such as your complete utility bill, insurance and property taxes.

Misconceptions: Exclusive Business Use

In contrast to many home-based businesses, your in-home daycare area does not have to be exclusively used for business. According to Duane E. Bennett, CPA, MBA, a percentage of your home's monthly mortgage payment, taxes and interest are deductible with the time-space percentage modifier.

References

• Tiffani Wampler; Preschool Owner; Round Rock, Texas
• Duane E. Bennett, CPA, MBA: Home Day Care: Tax Advantage or Tax Headache?
• Redleaf National Institute: The Time-Space Percentage

Resources

• Family Child Care Tax Information
• NNCC: TAX GUIDELINES FOR FAMILY DAY CARE
• Redleaf National Institute: Business Resources for Family Child Care Providers