What deductions can an in home child care provider use?
I do child care out of my home and want to know what kind of deductions are there for this type of business.
Public Comments
- Check with an actual CPA to be certain, but if you are registered and pay taxes as a child care provider, and only if, you may be able to write off a portion of your electric bill, cable, items purchased for the job, cell phone, and so forth. The reason why I pay my CPA/accountant $375 an hour is he is worth every penny in getting my max legal return. Do not attempt to do this yourself, get a professional CPA and pay him to get you what you deserve. You can write off what you pay a pro. You get what you pay for applies to tax consultants, H&R Block is not the answer. Good luck.
Post edit- To the guy who said $375 was expensive. He charges that for the hour I go in and does all the other work as part of the hour, so perhaps I should have said $375 for the whole process. I live in NY, very expensive, perhaps CPA's are less elsewhere and I have seen considerable return increases in the years with my guy so I am happy. You get what you pay for, I just wanted this person to realize going cheap up front can cost you big bucks in the end. Also, just plugging numbers in based on the past return can lead to trouble if codes change etc. An audit can be a nightmare in many ways.
- Some general advice first: (1) Use a W-9 to provide your tax id number to parents. (2) Don't give out your SS# for privacy reasons and identity theft - get a tax id # (EIN) for your business. (3) Save all grocery receipts unless you use the standard meal allowance rates. (4) Track all meals served to day care kids, even those not reimbursed by a food program. (5) Track hours you (& your spouse) work when kids are not present. (6) Always depreciate your home if you own it; depreciation will benefit you and it will be treated as a depreciated asset when you sell the home whether you took the depreciation or not. (7) Avoid a big tax bill and possibly penalties on Apr 15 by making quarterly estimated tax payments using Form 1040ES. (8) Do an inventory of your home furnishings when you start the business.
Home day care providers generally find it easier than other taxpayers with home offices to deduct a portion of the dwelling as business space, even if areas are not set aside exclusively for day care. For example, a room could be used as a living room at night and a playroom by day. If the day care is operated on a regular basis, this room could be considered a business/personal environment.
You must calculate the portion of your home expenses deductible as business expenses via a "time/space percentage." Time (as a percentage of the year) spent in your business multiplied by the area (square footage) of the house used for the day care operation helps determine the amount of home-related expenses that are deductible from gross income.
The most obvious time is that spent caring for the children. But also the same area/space used to house your children's toys or wash your family's clothes can be deducted if also used in your day care business (i.e., you store day care toys in the same storeroom as your children's toys and you wash items such as kitchen towels, rugs and naptime bedding in your washer.)
What are some of the household expenses one may deduct for a day care business?
Taxes and mortgage interest are normally fully deductible if you itemize your deductions. But by shifting some of these personal expenses from Schedule A deductions to your day care business (on Schedule C), you may be able to reduce your self-employment tax. Self-employment tax, computed on Schedule SE, is a Social Security and Medicare tax for sole proprietors such as day care providers. This results in taxes above and beyond the federal and state income tax you pay on your earnings.
Other expenses you can deduct include utilities, condo fees, insurance premiums and business telephone lines (but not the primary home line which will be considered personal).
Granted this can be a bit complex if you've not done it before. Nothing wrong with hiring a professional to work it up for you the first year...but after that, it should be relately straightforward to plug in the current year's figures using the prior year's return as a model. $375 an hr (quoted by another poster) sounds very steep. You should be able to find a qualified, experienced tax advisor for significantly less $.
Hope this helps!
