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Tax Benefits for Daycare Providers

Tax Benefits for Daycare Providers

Business owners have specific rules and guidelines associated with filing their taxes.  Running a daycare can be expensive, and the IRS offers incentives for the expenses incurred. As a daycare provider, you may be entitled to more deductions than you are currently claiming.  Fortunately, Taxes Made EZ INC. can help guide you through the income and deduction process.  

    As a child care provider, you must report your income to the IRS as a self-employed individual or a business operator.  There are several types of child care providers, as defined by the IRS.

 “Kith and Kin” providers are relatives, friends or neighbors.  This is usually an informal relationship, which can take place in either the child’s home or the home of the caregiver.  A spouse, grandparents, relatives, or friends all fall into this category, whether they collect payment for the services or not.  Any that do collect income, however, will need to report the income as self-employment income.  

Family Day Care providers are providers who take care of children in their own home, for periods typically less than 24 hours.  Many times they are subject to state regulations, such as background checks, training, or inspection.  They are also subject to health, safety and nutrition standards.  

Child Care Centers provide care in a separate facility designated for child care.  Child Care centers are required to have a license, and differ on what the facility provides.

In Home Care is provided by a paid housekeeper, maid, governess or nanny.  These caregivers are paid as household employees, and their wages are reported by their employers on a Schedule H.  

    Babysitters are hired on an as-needed basis, and they provide child care at the home of the child.

    As a Kith and Kin provider or babysitter, you will report your income on the Schedule SE, for self-employment income.  Most likely, in these situations, you will not receive a 1099, so make sure you keep track of your income throughout the year, and compare your records with the parent’s so you both have the proper information.  You can keep a log of the dates and payments, or a copy of checks received.  As a self-employed individual, you can claim expenses, although they will probably be minimal.  Keep in mind you will be paying income and self-employment tax.

    If you are providing In Home Care as a household employee, you should receive a W-2 from your employer.  Your employer is not required to withhold federal income taxes from your paychecks, so make sure, if you do not wish to owe taxes at the end of the year that you request to the employer that they withhold income taxes throughout the year.  Aside from any Schedule A deductions your position may qualify you for if you itemize, you cannot claim work related expenses against your child care income.

    If you own a childcare center or home day care, you will file according to the status of your business.  If you are a corporation or partnership, you may file differently than you would as a sole proprietor.  Keep in mind that most of the expenses that you claim as a business owner are available.  For a thorough description of these, contact your tax professional.  

    If you have a home daycare, you will be considered an In Home Care provider.  In addition to reporting your income, there are many deductions you qualify for.   To calculate your business use of your home, you use the Time-Space percentage.  This is the first step in calculating your expenses.  To do this, add the total number of hours spent working in your home for the year and divide it by the number of hours in a year.  This will give you the time.  To calculate the space, figure out the square footage of the space used for business and divide the total square footage of your home.  This percentage will be multiplied by the time percentage.  Now, you can deduct that percentage of your mortgage interest, rent, home maintenance, improvements and repairs, depreciation, property taxes, and utilities.  Since some of these expenses are not deductible for your home in and of itself, this gives you an added deduction which applies toward your business income.  

    You can also deduct your food expenses, including meals and snacks you serve to any children enrolled in your program or watched by you.  You can deduct up to one breakfast, one lunch, one supper, and three snacks per day per child. Food can be a high expense for daycare providers, so deducting these items can make a big difference in your return.  Also deduct other business expenses, such as mileage, supplies, equipment, and advertising expenses.

    Some child care providers are tax exempt.  These include after-school programs, church programs, or volunteer organizations.  If you are employed by or volunteer for a program such as this, you should speak directly to your Human Resources professional or to Taxes Made EZ INC. for professional advice on what you should do about filing taxes.  You may also be tax-exempt, or you may need to report these items.  In addition, if you did not receive any income, you may be entitled to charitable deductions.  

    Since child care providers are employed on various levels, filing their taxes can be complicated if the category they fall into is unclear.  If you are a child care provider, contact Taxes Made EZ INC. for assistance with filing your taxes responsibly and efficiently.



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