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Daycare and Taxes

Parenting and Child Care
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Overview

A daycare, just like any other small business, must pay federal taxes each year. Home daycare directors must keep detailed records to document all business expenses and then submit the proper forms to the Internal Revenue Service (IRS) before April 15th. Learn more about paying taxes on a daycare business and how to simplify the process.

Organization

Organization is crucial when doing small business taxes. Many daycare directors either use a software program or use a physical organizer file to collect and organize their receipt and other relevant documents. Some companies have created books with worksheets and lists so the daycare director can organize this information. The director can either place the receipts in a file folder or scan in all receipts to save in electronic format.

Many childcare software programs have a section that deals with taxes and record keeping. In case of an audit by the IRS, the daycare director has all relevant documents and evidence to use as evidence for the validity of the claims.

Deductible Expenses

Daycare providers should keep track of the time spent watching the children. In addition, they should also record time spent doing tasks related to the daycare business, like making phones or getting daycare licensing. All payment and income from the parents should also be documented.

Daycare providers must also calculate the space in their home that is used. The IRS has a percentage formula where daycare providers can deduct a portion of their home expenses for tax purposes, like rent/mortgage and utilities. For new daycare owners, they should take a home inventory before they start business in order to calculate the value of their belongings. Vehicle expenses can also be deducted; the daycare director should record all the miles for trips related to the daycare. Childcare directors may also record the odometer readings for the tax records and documentation.

Daycare providers normally spend money on equipment for the daycare business. All receipts for taxes should be saved for direct and indirect expenses. Direct expenses are expenses only for the daycare, like print ads or a daycare website; indirect expenses are shared expenses between the daycare and the home, like cleaning supplies or furniture. Indirect expenses fall under the percentage calculation, while direct expenses are wholly deductible. Daycare expenses can be deducted for tax purposes include: advertising, art supplies, books/curriculum, children’s bedding, childcare equipment, house maintenance/cleaning costs, diapers, licensing fees, food, toys, cleaning supplies, daycare business supplies and insurance.

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