Childcare providers, did you know that the tax law provides you with special tax breaks. Daycare tax breaks are not limited to childcare providers only. They also include those who care for the disabled and eldercare providers as well. These daycare tax breaks include deductions for travel, capital purchases, supplies, children’s meals and the business use of your home.
The basis for your vehicle expenses are the number of qualifying business miles that you drive. Auto expenses for you (as a day care provider) could include transportation:
- To and from a class taken to enhance your day care skills;
- For field trips with those for whom you are providing care;
- For errands related to day care business (e.g., going to the bank to deposit day care receipts or to the store to shop for day care supplies); or
- To chauffeur day care attendees.
Actual Expense Method for Vehicle Expenses
To claim business use of your vehicle, as childcare providers, use the actual expense method or the standard mileage rate. However, the actual method requires far more detailed records; you must keep track of your business miles and total miles to prorate the costs of fuel, insurance, repairs, etc. You will probably find the standard mileage rate to be far more simple. This is because you only need to record your business miles and the purpose of each trip. Even with the standard method, you’ll still need to know the total miles driven for the year. For 2017, the rate is 53.5 cents per mile, down from 54.0 cents per mile in 2016.
Capital expenses for items are those that normally last more than one year. These include cribs and playground equipment. Be sure to keep receipts for these items. They can generally be depreciated or expensed, whichever works best for you.
Supplies and Business Expenses
The cost of items such as crayons, coloring books, paper plates, cups, cleaning supplies, and first aid supplies are also deductible in the year you purchase them. However, you need to keep receipts for all such purchases.
Children’s Meals or Elderly Feeding
You can also deduct the actual cost of any food that you provide to the children in your care. Bookkeeping can be a nightmare when it comes to to keeping track of grocery items that were bought. Why? You must separate the childcare business receipts from your personal shopping receipts. Luckily, the government allows a care provider to deduct standard meal rates in lieu of actual amounts.
Standard Meal Rates Allowance for Childcare Providers
This method does not require you to keep grocery receipts, and the IRS will not contest a food deduction contingent upon the standard rates. The rates are the same throughout the contiguous U.S. states, with higher allowances for Alaska and Hawaii. Year State Breakfast Lunch Dinner Snack 2016 Contiguous Alaska Hawaii.
Business Use of the Home
A business deduction for your home use must be exclusively for the business. Knowing that childcare providers do not use a specific space in the home 100 percent of the time, Congress made an exception that relates to the business’ licensing, certification, registration, or approval as a day care center or family/group care home. These provisions are subject and applicable to state law where you reside.
This exception applies only if the childcare owner or operator has applied for, been granted, or is exempt from such approval. In addition, the exception does not apply if the services are primarily educational or instructional in nature (e.g., musical instruction). However, the exception does apply if the services are primarily custodial, such that any educational, developmental or enrichment activities are only incidental to the custodial services. Services for adults age 65 or older, children, or other individuals who are physically or mentally incapable of caring for themselves are part of this tax exception.
When calculating the percentage use of a home for business, there are two factors to take into account. The first is the space you use to operate the day care business. The second is the amount of time that the space is in use to provide day care, including preparation and cleaning time.
Simplified Home Deduction Method
There is also a simplified deduction method for the business use of a home; it may be useful for individuals who work from a home office, but it is generally unsuitable for a childcare business.
There is a gross income limit for the business use deduction. If that limit applies to you, any home mortgage interest and property taxes that you have paid, are always deductible when you itemize deductions. Also, any casualty losses that you have for the year. These are true regardless of whether you claim a deduction for the business use of the home.
Childcare Providers With Questions, Call Worthtax
Do you care for children in our home? Do you care for the elderly in your primary residence? What about a person with a qualifying handicap? You most likely have questions that relate to how any of these tax breaks apply to your daycare business. Please give this office a call. Alex Franch, BS EA a call at 781.849.7200. Alex is an enrolled agent with the IRS. While you are on the call, make an appointment to have your taxes prepared and filed. Worthtax has locations in Quincy, Weymouth and Dedham or book your appointment online.
Other Childcare Tax Sources and Resources
- Summer Vacation, Who Cares for the Kids?
- Tips on the Dependent Care Tax Credit
- Steep Long Term Care Costs Await Seniors: Tax Deductibles Help Abate the Price Tag
- Trump’s Tax Plan
- 9 Tax Tips for Disabled Taxpayers