Can I Deduct Daycare As a Business Expense?

Daycare is deductible if you need it to work or to job hunt.
Daycare is deductible if you need it to work or to job hunt. (Image: Comstock/Stockbyte/Getty Images)

If you provide daycare to your employees as a fringe benefit, it's tax deductible. Employee pay and benefits are among the standard business write-offs. If you're self-employed and need to put your child in daycare, you may be able to claim a tax credit instead of a tax deduction.

Employee Fringe Benefits

Daycare is a fringe benefit for employees, which makes it a form of pay. Your company is entitled to write off any such benefits you pay your employees, just as you deduct their salaries from company income. An employee's benefits have to be a reasonable reimbursement for the work he performs. For example, suppose you provide daycare for one employee, who's a relative, and does almost no work for you. That might not pass the IRS' "reasonable" smell test.

Sole Proprietors

If you're a sole proprietor putting your own kid in daycare, you may be able to qualify for the federal child-care tax credit. The credit is available if you can't work without childcare. If you have a spouse, she has to either be working or job hunting for you to get the credit. The credit comes right off your tax bill, rather than your income. You can claim up to 35 percent of the first $3,000 of expenses for one child, or $6,000 for two or more children.

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