As a childcare provider, you're entitled to special tax breaks. Some of the deductions you can take are common to small businesses; other deductions are specific to the child care industry. To save money come tax time, be sure to document all of your expenses and keep dated receipts on file (you'll also need proof of your expenses in case of an audit).
Supplies and Expenses
Ordinary and necessary items like art supplies, paper plates and cups, first aid supplies, and cleaning supplies are deductible in the year they are purchased. Keep receipts for all purchases, and try to get separate store receipts just for the items you use for day care.
Capital items are items that last for more than one year and cost more than $200, such as playground equipment or cribs. Keep dated receipts for capital purchases since they can generally be depreciated or expensed.
You can deduct the actual cost of any food that is provided to the children in your care. It would be quite time consuming to keep track of which grocery items were purchased for your childcare business and which items were purchased for personal consumption, so childcare providers are allowed to deduct standard meal rates in lieu of actual amounts. Standard rates are the same across the contiguous United States, with higher allowances for Alaska and Hawaii. With this method, you are not required to keep grocery receipts, and the IRS will not contest a food deduction based on the standard rates.
Business Use of Home
While generally a deduction for the business use of a home means that that portion of the home must be used exclusively for business purposes, Congress has added an exception that relates to the certification, licensing, registration, or approval of the business as a day care center under the provisions of any applicable state law. Under this exception, you can claim a business deduction for the space in your home that you use for day care.
When calculating the percentage use of your home for business, you'll want to factor in the square footage of the space used to operate the day care business, and the amount of hours per week the space is used to provide day care, including preparation and cleaning time. If you aren't sure how much of your home you use for business, our Time Space Daycare Worksheet can help.
Auto expenses are based on the number of qualified business miles that you drive. For childcare providers, auto expenses could include transportation for any errands that are directly related to your business, such as to the store to shop for day care supplies, or to chauffeur day care attendees on an educational field trip.
To deduct business driving, you must provide complete and accurate records of all mileage. You'll need to track both your business miles and total miles to prorate the costs of fuel, insurance, and repairs. For 2017, the standard rate for business miles driven is 53.5 cents per mile, down from 54 cents for 2016.