The cost incurred for food and supplies for a home daycare and childcare business can be deducted on the business’ taxes and most child care providers are very much aware of this fact. Some even know they can take a substantial mileage deduction. But many home daycare providers miss some large deductions that can really help trim their tax bill or increase their refund.
If you were to keep and file the receipts from last year and have added up your food costs, then you can surely calculate the cost of your consumable supplies. Consumable supplies are the items used for your business that are, well, consumed and have to be purchased over and over again. Items like toilet paper, tissues, napkins, paper towels, dish soap, laundry soap, etc. fall into this category. All of these items are either used by the children in your care or are used more frequently because you have children in your care. And all of them are partially deductible on your taxes. If you buy these supplies strictly for child care and your family doesn’t use them, then these supplies are 100% deductible. However, most of us don’t separate out our toilet paper for daycare and family use.
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.
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