One of the benefits of owning your own business is the ability to write off or deduct business expenses. As a daycare business owner you are entitled to literally hundreds of deductions that you can claim to reduce your taxes. When you own a family daycare business, you will have both direct and indirect expenses that can be deducted.
Direct Expenses
Direct expenses are those costs incurred solely for your daycare business. Direct expenses are a direct tax deduction.
Here are some of direct expenses: Food, Household and Kitchen supplies, Arts and crafts supplies, Classroom/home Decorations, Parties, Field trip Costs, Small Toys and Games, Furniture, Toys, Outside, Gifts to parents (up to $25.00 a couple), Gifts to childcare children, Children paid to work (4,550.00perchild), Computer/printer/etc., Computer Supplies, Software Internet service/web pages, Music, Cd’s, Instruments, Videos and rentals, Licensing Fees, Inspection fees, Dues and subscriptions, Educational training, Books, Materials, Legal and Accounting fees, Office Expenses, Postage/mail, Bank Charges, Home insurance, Health insurance, Co-pays, Prescriptions, Advertising, Repairs/related to childcare, Telephone, Cell Phone, Credit cards, Pet food, Vet Bills, First aid supplies, Cleaning supplies, and Legal and Professional fees
Indirect expenses:
Indirect expenses are the expenses that are shared between your business and your family. To determine the portion of your indirect expenses that are tax deductible the “Time/Space Formula” is used.
Some examples of indirect expenses are: Legal and Accounting fees, Office Expenses, Postage and mail, Bank Charges, Home insurance, Health Insurance,, Co-pays, prescriptions, Advertising Repairs related to childcare, Telephone, Cell Phone, Credit cards, pet food, Vet Bills, First aid supplies, Cleaning supplies, Food, Household and Kitchen supplies, Arts& crafts supplies, Classroom and home decorations Small Toys and Games, Furniture, Toys (shared and outdoor), Outside equipment, Computer Supplies, Computer, printer, Software, Internet service, Web pages, Music, cd’s, instruments, Video rentals, Licensing Fees, Inspection fees, Dues & subscriptions, Educational training, and Books.
Time Space Formula
The first step is to determine the number of hours per year you have spent doing childcare. This number is divided by the number of hours in a year. This is the percentage of time you have spent providing child care during the year. Next, calculate the percentage of your home used strictly for your childcare business. Multiply this percentage by the percentage of hours you have worked during the year to obtain a final percentage. For example, if you have spent $3,000 on consumables per year you will multiply that by your final percentage to obtain the amount you can claim on the consumables you have purchased.
Of course none of these deductions are possible without keeping excellent records once you have received your daycare license.
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Nice article, but just a few corrections:
In general, family child care providers can’t deduct pet food or vet bills in their business. In 25+ years of work in their area I’ve never seen the IRS allow dog or cat food deductions. It’s possible for a provider to incorporate some pets into their business (birds, fish), but only if she can show how children are learning from these pets.
Health insurance – only premiums are deductible in 2010 if a provider is not eligible to participate in an employer health insurance plan
Prescriptions – never deductible unless a provider has set up a medical reimbursement account
Telephone – the first phone line into a home is never deductible. Only the business portion of a second phone line is deductible.
Many of your listed expenses appear in both the direct and indirect category. Expenses can be deducted 100% for business only if they are used 100% for business.
Being licensed is not a measure of whether a provider can deduct these expenses. Providers who are not licensed, but are in compliance with state child care regulations can deduct expenses exactly the same as licensed providers. Providers who are in violation of state child care regulations cannot deduct house-related expenses, but can still deduct all other expenses (food, toys, supplies, etc.).
Tom Copeland
http://www.tomcopelandblog.com