How to Prepare for Tax Time with Your Home Daycare

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The Internal Revenue Service allows you to claim business expenses for your daycare only if it is licensed or legally exempt. The space that you use for daycare must be dedicated to that purpose only; you may not count a room used only occasionally for daycare and the remainder of the time for as part of your personal residence. Being organized pays off: If you pay an accountant to do your taxes, take all required documents — in a discernible order — to your accountant.

Things You'll Need

  • Loose-leaf notebook
  • Three-hole punch
  • Envelopes
  • Pen
  • Record-keeping system or software

Set up a loose-leaf notebook, divided by months. Save utility bills — electric, phone, water and sewer, cable, etc. — and put each one in the tabbed section for the month that you received and/or paid it. You may deduct business expenses, according to the IRS, if parts of your home are used on a consistent basis.

Set up envelopes with months written on them. Have one set marked "Home" and one set marked "Daycare." Keep the current month's envelopes with you. When shopping, pay for business -related purchases separately. Place business expense receipts in the appropriate envelope.

At the end of the month, put your receipt envelopes into the box marked "Receipts."

Keep every gas receipt, car repair bill, even toll receipts for daycare trips, or daycare-related trips (to grocery store, training classes, etc). Keep meal receipts when you take the children out to eat, or for anything that you pay for on daycare trips, including Christmas gifts, birthday gifts, etc. Remember to make an identifying note on the back of each receipt.

Keep a mileage book in your van, noting distances to places that you go for the daycare, like the school, the playground, etc.

Measure every room that you use for your daycare. Make note of any rooms that you use exclusively for daycare, which rooms you use for both family and daycare, and which rooms are just for family. Write down the square footage for each.

Keep track of how many hours you were open for business, and how many hours you were available to be open for business. For example, your hours of operation might be 6 a.m. to 6 p.m., even though your the first child doesn't arrive until 7:30 a.m. These hours will be used for your time/space formula.

Tips & Warnings

  • Being organized pays off.
  • If you pay an accountant to do your taxes, and bring all of the above, categorized and notated, your accountant will love you! If you do your own taxes, you just made your job a whole lot easier.
  • According to the IRS, you can only claim business expenses for your daycare if you provide licensed daycare, or legally exempt daycare.
  • You have to use rooms that you claim for business regularly in your daycare, you cannot count a room used occasionally towards your deductions.

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