When you provide daycare services to parents as a business, tax deductions are available for your daycare service. Salaries and supplies, as well as vehicles are just a few of the expenses the tax laws allow you to deduct. In addition, if you run your daycare from your home, you can deduct many household expenses that you pay already, increasing your after-tax profit even more.
Salaries
If you hire teachers and assistants for your daycare center, the salary that you pay them is a legitimate business expense that can be deducted on your IRS Schedule C. If you are a sole proprietorship, your own salary is not considered deductible, because the business income is your income; a tax return is not filed seperately. Family member's salaries that you pay should be deductible as long as you are paying market value for their services, and they are legitimately working at the daycare.
Furniture, Equipment and Supplies
Any specific furniture that you use in the daycare business may be deductible. This would include infant cribs, beds, tables and chairs. Computers may also be deductible expenses. This would apply to a computer you use for operating the business and performing bookkeeping tasks, as well as any computers used for education or entertainment of the children that you care for. You may also deduct the price of office supplies used in daycare operation, or craft supplies and books for the children. Some equipment may need to be depreciated over several years.
Vehicle Expenses
If you provide pickup or drop-off services for the children, or provide transportation to other activities, you can deduct expenses related to your vehicle. If you have a vehicle that you use exclusively for business, then all of the expenses relating to those vehicles are a deductible daycare expense. If you use a personal vehicle partially for business, you can deduct the business portion of your vehicle expenses. Keep careful records of your business and personal use by the mile, as well as your actual vehicle expenses. You can choose to deduct the business percentage of the actual expenses or a fixed amount per mile.
Home Daycare Expenses
Many people operate a daycare business out of their home. If you do this, you can deduct certain expenses for business use of the home. With a daycare, you do not have to meet the IRS exclusive use rules. Calculate how many hours per year you use a portion of your home for daycare, and calculate that as a percentage of the number of hours in a year. Next, figure out what percentage of the square footage of your home is used for your daycare business. Multiply the two percentages together to calculate the allowable percentage of your deductible home expenses. Home expenses include mortgage interest and maintenance, as well as utilities and taxes. You claim these expenses on form 8829, business use of the home.
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