Operating a daycare out of your home entitles you to several business-related tax deductions. To claim these deductions, you must have a valid license from your state to provide in-home daycare for children, senior citizens or disabled individuals. Some expenses may be only partially deducted if they are shared between the daycare and your family's personal use.
Driving done on behalf of your daycare is deductible as a business expense. You can track your actual gas and oil costs or use the IRS standard mileage rate. This includes field trips and giving clients rides to or from their homes. You may also deduct mileage for trips made alone as long as the drive is necessary for the daycare's business operations, such as a trip to the bank, post office or grocery store.
The IRS uses the time and space formula to determine the deductible portion of any shared expenses. Divide the hours you spend on your daycare during the year by 8760, which is the total number of hours in a year. Measure the area of your home that is set aside for the daycare. Divide this measurement by the total square footage of the house to find the percentage of space used by the daycare. Multiply the two percentages together to find the percentage of each expense that will be deductible.
Food and Supplies
Supplies required to keep the daycare clean and sanitary are deductible. This includes items such as dish soap, laundry detergent, baby wipes and disinfectant, and consumables such as toilet paper, paper towels and garbage bags. You may also deduct food costs if you serve meals or snacks to children in your home. Use the time and space formula to split the expenses between the daycare and your personal consumption unless you keep separate inventories. You may deduct the full amount if you directly track the amount of each item you use for the daycare.
You may deduct the cost of any improvements made to the area of the home used for daycare, such as paint, carpeting or child-proof safety measures. Utilities and home-related expenses such as property taxes, insurance and mortgage interest are also deductible based on the time and space formula. Internet, phone, cable television and other utilities may be 100 percent deductible if you set up separate accounts solely for the daycare's use. Keep copies of all receipts for materials and contractor invoices in case you must defend your deductions in an IRS audit.
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