Tax Deductions for Day Care Providers

Auto Travel:
Your auto expenses are based on the number of qualified business miles you drive. Auto expenses for you as a day care provider could include your transportation:

  • to and from a class taken to enhance your day care skills; 
  • on field trips with those for whom you are providing care; 
  • for errands related to day care business (e.g. going to the bank to make a deposit of day care receipts); 
  • to the store to shop for day care supplies; or 
  • when chauffeuring day care attendees. 
Capital Services:
Certain purchases for day care use may be so-called “capital items.” These items must be deducted on your tax return using different rules than are used for supplies and expenses. Capital items are those that normally last more than one year – typical examples would be cribs, playground equipment, etc. Be sure to keep receipts for these items, as they can generally be depreciated or expensed, whichever works best for you.

Supplies & Expenses:
Generally, to be deductible, items must be ordinary and necessary to the operation of your day care business. This includes the cost of items such as crayons, coloring books, paper plates, cups, cleaning supplies, and first aid supplies are also deductible in the year they are purchased. However, you need to keep receipts for all such purchases. Record separately items having a useful life of more than one year. Be sure to keep receipts for these items separate from receipts for capital purchases discusses previously.

Food:
You can also deduct the actual cost of any food that is provided to the children in your care. It can be a bookkeeping nightmare to keep track of which grocery items were purchased for the childcare business and which were for personal consumption. Luckily, the government allows a care provider to deduct standard meal rates in lieu of actual amounts. This method does not require you to keep grocery receipts, and the IRS will not contest a food deduction based on the standard rates. The standard meal rates for breakfast, lunch, dinner and snacks are adjusted for inflation annually.

Business Use of a Home:
Normally, the expenses you incur (other than home mortgage interest, taxes or casualty losses) related to your personal home are not deductible. However, when you regularly use your home for licensed day care, a portion of the cost of your home upkeep can be deductible – the deductible amount depends on both the number of square feet you use for day care AND the amount of time you routinely use various rooms of your home in the day care business.

Your day care records don’t need to detail the specific hours a room in your home is used for business. It’s enough to show that you regularly use a room for day care. For instance, say your home has one bedroom that is regularly used for afternoon naps for day care recipients – about two hours each day. Your day care center is open from 7:00 a.m. to 6:00 p.m. Even though nap time uses only two of the 11 hours your center is open, the bedroom is considered used for business for the entire 11-hour business day.

There is also a simplified deduction method for the business use of a home; it may be useful for individuals who work from a home office, but it is generally unsuitable for a childcare business.

The deduction for the business use of a home is limited to gross income from the business. If that limit applies to you, any home mortgage interest and property taxes that you have paid, as well as any casualty losses that you have incurred for the year, are always deductible when you itemize deductions, regardless of whether you claim a deduction for the business use of the home.

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