There are a few factors that you need to know before calculating how much you can deduct and correctly use them in qualifying for a daycare tax exemption. Any facilities that you use in running your daycare are included in the computation and one of this is your house. However, in order to calculate this properly you need to figure out what portion you used for business and what is used for your personal living expenses. In this way, you can use a portion of the amount you paid in your general bills, such as electricity, water, telephone and other bills that may be employed in running your daycare. Just be reminded that only the amount used when running the daycare can be used to qualify for the daycare tax exemption.

Included also in the expenses that can be claimed for tax exemption are the food you have used in the meals of the children and to your employees too (if there are). In fact you can deduct 100% to your tax the expenses on meals of your employees. It may be easier to keep a standard rate for all the meals and snacks provided in your daycare. You can use up to three snacks a day, beverages and three meals, but you cannot include any non-food items used to prepare the meals. Of course this is only good for employees that food allowance is not yet included in their salary or wages. You have to have a complete and updated record on these for you to avail the tax exemption. Bear in mind that personal expenses in your personal food nor your family are not included in the computation.

Therefore, at the end, you will think running your daycare in your own house is not a bad idea after all. You will realize that you can also gain many benefits from running your daycare in the comforts of your home and this is by taking advantage of the tax deduction. In addition, with the careful calculation and a little extra work, you will be amazed because you can make the daycare tax deduction possibly work best for you.

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You therefore need to apply the time/space formula to the total amount spent on supplies within a year in order for you to find out how much you can deduct for these consumable The time/space formula calculates how much time you spent doing daycare in a year compared to the number of hours in a year, and also calculates the amount of space in your home that you use for your business.

You need to calculate the number of hours you spent doing child care in a year. Then you need to divide that number by the number of actual hours in a year (8760) to come up with a percentage of time you spent providing child care in the year. Finally, you need to calculate the percentage of your home that you use for your business and multiply this percentage times the percentage of hours worked to get a final percentage. This final percentage is then multiplied by the amount spent on consumables in a year to come up with the dollar figure of how much you can claim as a business expense on the consumables you purchased.

Here is a list of the most common consumables used, though you may come up with a lot of others depending on your situation:

Dish soap, laundry detergent, dryer sheets, all cleaning products, Ziploc bags, aluminum foil, Saran wrap, garbage bags, tissues, toilet paper, paper towels, baby wipes, hand soap, lotion, paper plates, paper cups, and air fresheners.

There are many other supplies and consumables that you probably use at home. You can come up with your own list, whatever would best reflect your current situation.

Other types and forms of deductions have something to do with supplies and services for your home that you pay for. This includes utilities, garbage services, internet service, and more. Since these services benefit both your business and your family, they once again need to have the time/space formula applied to them in order to calculate your deduction. Use the figure that you calculated from above and multiply it times the total amount paid in a year for, say, your electric bills to come up with a deductible amount. Basically, any supply or service that is used to benefit your business can be at least partially deducted.

Remember to include these items: electric bills, gas, water bills, home security system fees, cable or satellite television, internet service and garbage and/or recycling pickup. All of these services are necessary for running a child care business and are therefore deductible. Just calculate the total amount spent in a year for a service and then multiply it by your time/space formula calculation to get a total deduction. Just like what you did with the other deductibles mentioned above.

There are occasionally times when you can deduct 100% of the cost of a service. This applies when a service is used exclusively for your business. For example, if you have a phone line that is only used for your child care business, then you can deduct 100% of the fees for that phone line. Also, if your child care is run out of a separate building from your home, say a converted garage, then you can probably figure out the electricity for just that building and deduct that cost at 100%. It is, of course, advantageous to be able to increase your deductions, so take advantage of this if you can.

The tenth and final deduction that is commonly missed is a deduction for work done on or services provided for your home. For example, did you have new gutters installed? That cost will be at least partially deductible. Did you have your carpets cleaned? Again, that is a deduction. Did you have a repairman come to fix the refrigerator? Take a deduction for that! Save all receipts for any work done so you can claim the deduction. You will need to speak with your accountant about how much you can deduct for services done, because it depends on the service how the deduction is taken. Things like refrigerator repair will probably be deducted based on the time/space formula. Carpet cleaning and other cleaning services may be 100% deductible. Things like home improvements may have the time/space formula applied or they may be depreciated, depending on the cost. These can be great deductions, it is just a little more difficult to know how to calculate the total deduction on these items and should probably be done with the help of an accountant.

All the deductibles should be determined and calculated on a regular basis since failure to do so would definitely lower your chances of lessening and lowering the tax deductibles that you ought to pay. Besides, doing this is definitely your right and benefit as home owner and a small business owner altogether.

See: How to start a home daycare

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* However, it would be wise to attend first a seminar so you could understand all the rules that is available in any tax filing. Look for seminars that deal with taxes for child care business or you could simply ask the help of an government agency to teach you the methods that you have to learn. Further, it would also help if you can check with other local community colleges, daycare providers, or child care organizations so you could ask them about the critical issues that you have to understand in terms of tax collection. Gear yourself with a lot of patience since you will need a lot of it in order to get through the process.

* However, there will be times when it would be wiser to seek the help of a professional in order to complete your taxes, particularly during those moments when you are not fully aware of the items that you have to be addressed. Also, seeking for their help may also open the probability of more deductions that could create a big difference on your budget. After then, you may want to go back to the process of doing everything by yourself.

* Another question to mull about is the list of deductions that you should be claiming. One of the best claims that you could incorporate to save on your money is the claim for mileage. Keep in mind that a home daycare provider is given the ability to claim for mileage for any kind of trip by which the child care business has done. This would even include the simple trip into the grocery store during those times when you have to buy food for the daycare. You could even incorporate all of those trips that you do in order to buy art supplies or toys. Even those trips to the bank so you could deposit child care income should be included.

* Furthermore, one deduction that you could claim is the cost of food and supplies that you use for your child care. As simple as it may sound, this is considerably among the biggest tax deduction that you could claim!

* There are basically two methods that you can follow in keeping track with this aspect. First, you can shop separately for the entire list of foods which is needed by the daycare and your family. And secondly, you can shop for both at the same time, wherein you could just separate items that are used for your daycare later on your receipt.

* There are other claims for deduction that you can place, hence it is highly needed if you can ask around or perform your research first so you will have a full understanding of all your rights and privileges when it comes to tax deductions. For sure, some other daycare owners in your locality will be more than happy to cooperate with you when it comes to tax issues, thus you don’t have to feel dubious in asking around.

* Now, if you like to have a professional to complete your taxes, you should ensure that you possess all the necessary information with you during your initial meeting. This is because of the fact that doing this process will in fact help you to save a big portion of your money in terms of tax preparation fees since you wont have to meet the accountant every now and then. In fact, there are a lot of accountants who would charge less in case they had less work to do. With this, it is wise to prepare most of the information that will be needed along the way before meeting with them.

* Furthermore, you can bring a sheet that gives a calculation of your time-space formula, the total amount of income that your business is making, a mileage log, a complete list of all the expenses, and various other vital informations which are somewhat relevant to the business like your tax id for example. You should also see to it that you will be able to back up the entire list of information that you give with receipts so you will have something to show just in case your accountant wants to see them. In case you do not possess everything that the accountant wants then you don’t have to worry at all since you can always get them later if necessary. But it will always be nice if you can be as prepared as you can since this will lead you to a cheaper result!

You see, being aware of every expense that your company would make is a vital move to ensure that you will be paying lesser than the amount that you expect in your business tax. With this, it is helpful if you can be as organized as much as possible. Keep all the receipts and maintain a list of expenses.

See: How to start a childcare business

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