Do I Have to File Taxes for My In-Home Daycare?

Filing your taxes is an important part of running an in-home daycare.

Filing taxes is a critical part of running any business. If you fail to file taxes you can be prosecuted for tax evasion, and be fined and charged interests for failure to pay. As a home daycare provider it is important to keep careful records of your income. Many of your expenses will be tax deductible, and reduce the amount you need to pay.

Filing Taxes

You are required to file taxes each year you make money. Keeping careful records of the money you make and your business expenses is essential to filing your taxes accurately. The first year you open your business it may pay to hire someone who specializes in small business to help you file your taxes so you can learn which deductions are legitimate and minimize the amount you need to pay each year. Choosing good accounting software may make the process easier as well.

Deductions

There are many deductions you can qualify for as a home daycare provider. Any equipment you buy or classes you take during the year can be deducted as a business expense. Additionally, any food you purchase for the children is tax deductible as well as art supplies and advertising you do for the business. Additionally you can deduct your health insurance if you purchase it out of pocket and other expenses related to your home daycare business such as liability insurance. Keep copies of your receipts and a careful spreadsheet or written documentation of your deductions. The IRS separates the deductions into categories, so you may want to separate the receipts into categories as the year progresses.

Paying Quarterly Estimated Taxes

You should set aside about 25 percent of your earnings each month for taxes. In addition to paying income taxes you will need to pay self-employment taxes, which is the portion of Medicaid tax your employer would pay if you were an employee. The first year you are in business you are not required to pay quarterly estimated taxes, but you may choose to if you are not good at saving money. After the first year of business you will need to pay estimated taxes, especially if you had a tax liability (meaning you owed the IRS taxes) the previous year. You can pay the taxes online each quarter.

Reporting to Families in Your Care

Families can use childcare expenses as a tax credit to reduce the amount they pay in taxes. You will need to provide a form indicating how much each family paid you for the year. Also, give them your tax identification number or your Social Security number. If you are uncomfortable giving them your Social Security number you should apply for a tax identification number when you open your home daycare business.

References

• IRS: Top Ten Facts About the Childcare Credit
• USDA: Starting a Child Care Center
• National Association for Family Childcare: Estimated Taxes