Opening your home to care for children gives you the opportunity to cash in on several tax deductions. Any purchases or expenses related to the day-care business are potential deductions on your tax liability. The house itself gives you another deduction possibility under the IRS provision for business use of your home. Maximize your tax deductions by keeping accurate records of expenses for your day-care service.
As a homeowner, you are able to deduct a certain portion of your home as business use. For most home-based businesses, the part of the home deducted must be used only for business purposes. Home day-care providers are able to deduct portions of the home used for both day care and personal use. The requirements for this deduction are that you must be in business as a care provider and have a license, registration or similar designation from the state as a day-care home. You must calculate the area of the home that is used for day care. If you also use it for personal use, you only get to deduct a portion of the amount based on how much you use it for day care.
Advertisement Article continues below this adThe supplies you purchase specifically for your day-care business are considered deductible business expenses. Included in this are the supplies you use directly for the kids like diapers, wipes, toys and care items like baby gear. It also includes your office supplies used to run the day care. This includes paper, file folders, receipt forms and similar office supplies. Keep receipts for all of these purchases as your record for tax purposes. Purchase day-care supplies separate from your personal purchases so you are able to keep the receipts separate and more organized.
Keep track of any business expenses beyond the supplies that go toward your day-care business. These expenses are potential sources of tax deductions on your return. Deduct fees you paid during the tax year, such as licensing fees or costs of joining professional organizations. Keep track of costs associated with classes or training related to your day-care business that you attended during the year. Other potential deductions include legal fees for business purposes, insurance and advertising costs.
Advertisement Article continues below this adAny driving you do related to the day-care business is subject to the standard mileage rate for tax deductions. This amount changes each year and is a certain amount per mile you drive. This includes transporting children while they are under your care or driving to handle business matters. Document your mileage throughout the year to have an accurate record of how much you drove for work purposes.