Operating a daycare out of your home entitles you to several business-related tax deductions. To claim these child care provider tax deductions, you must have a valid license from your state to provide in-home daycare for children, senior citizens or disabled individuals. Some expenses may be only partially deducted if they are shared between the daycare and your family's personal use.
Claiming Mileage Deductions
Driving done on behalf of your daycare qualifies as one of many deductions for home daycare business status.You can track your actual gas and oil costs or use the IRS standard mileage rate. This includes field trips and giving clients rides to or from their homes. You may also deduct mileage for trips made alone as long as the drive is necessary for the daycare's business operations, such as a trip to the bank, post office or grocery store.
Deducting Additional Expenses
The IRS uses the time and space formula to determine the deductible portion of any shared expenses for a daycare in your home. This is based on the number of hours you spend operating the daycare and the percentage of space the daycare takes up in your home compared to the home's total square footage. Use the Daycare Facility Worksheet provided by the IRS to determine what percentage of shared expenses, like heating, can be deducted.
Supplies required to keep the daycare clean and sanitary are deductible. This includes items such as dish soap, laundry detergent, baby wipes and disinfectant, and consumables such as toilet paper, paper towels and garbage bags. You may also deduct food costs if you serve meals or snacks to children in your home. Use the time and space formula to split the expenses between the daycare and your personal consumption unless you keep separate inventories. You may deduct the full amount if you directly track the amount of each item you use for the daycare.
You may deduct the cost of any improvements made to the area of the home used for daycare, such as paint, carpeting or child-proof safety measures. Utilities and home-related expenses such as property taxes, insurance and mortgage interest are also deductible based on the time and space formula. Internet, phone, cable television and other utilities may be 100 percent deductible if you set up separate accounts solely for the daycare's use. Keep copies of all receipts for materials and contractor invoices in case you must defend your deductions in an IRS audit.
Filing Your Deductions
You can create an itemized list of your deductions using Schedule A on Form 1040 as part of your annual income tax return. Keep in mind that failure to appropriately document these deductions could result in various penalties. With that in mind, individuals should prepare a daycare provider tax deduction checklist and consult with a tax professional or CPA if they have any questions about their tax return.
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