If you run a home daycare, you are eligible for the same types of tax deductions as other businesses. Home daycare providers also have more relaxed standards when it comes to taking a deduction for home office or business use. Tracking your expenses and making sure you claim every deduction you are eligible for will help you reduce the amount of tax you need to pay each year. Keeping great records is a must for a home daycare provider, since many of the supplies you purchase are inexpensive but add up over time.
Using Your Home
Because you use your home for a business purpose, you can deduct a portion of your household expenses. According to the IRS, some deductions you can take include portions of your rent or mortgage payment, homeowners insurance, utilities and other expenses that you incur because you work from home. Unlike other occupations, a home daycare provider is not required to use a portion of the home exclusively for work to be able to claim this deduction.
If you run a home daycare, you may be able to deduct the cost or part of the cost of providing meals and snacks to the children you care for. IRS publication 587 includes a specific formula for figuring out this deduction, which can save you money if you provide food as part of your home daycare. You have the option of tracking your actual food expenses or taking a standard food and snack deduction for each child in your care.
Toys and Equipment
The toys, games and other equipment you purchase for use in your home daycare are considered a business expense and can be deducted from your taxes. These items need to be purchased for use for the daycare and used in the daycare and may be considered a capital expense; toys your purchase for gifts or personal use are not allowed. Maintenance and upkeep of your playground or outdoor play area is deductible as well.
Regular Business Expenses
Even though your business is run from your home, you can still qualify for deductions for everything from advertising to postage. Because you run a business, any expense that you incur to run that business is a possible deduction. Keep track of what you spend on office supplies, training, employees and other business-related items. Most business expenses are partially or fully deductible, and claiming them will cut the amount of taxes you are responsible for.
Sarah Emerald is the author of books and magazine articles specializing in crafts, family, business and the home, including Create and Decorate, Hilton Head Monthly and Crafts magazine. She has a Bachelor of Arts in English from a small private college in the southeastern U.S.