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This post is all about taxes for daycare.
Taxes for daycare can be so overwhelming, especially in the beginning of your business. Completing taxes is a scary task regardless if you're a business owner or not. As a business owner, it adds a lot more pressure that you're doing it correctly, filling out the right tax forms, and not missing any tax deductions.
If you're just starting your home daycare, the most important thing to learn right now in this moment is to keep records of everything! Keep every single receipt! It's easier to throw out what you don't need than try to remember what you purchased and prove that purchase without a receipt.
Once you understand home daycare tax deductions a little better than you'll know what you can toss and what you need to keep. But for now, keep all of the receipts!
I'm not an accountant, so I'm not giving legal advice; I'm just sharing tips on what my accountant has shared with me over the past twenty years.
TAXES FOR DAYCARE
What Do You Need For Taxes For Daycare
A licensed and experienced CPA in home daycare! I'm not going to lie, this is hard to find. Home daycare providers have unique tax laws, and it's vital to find somebody who has experience in this so you get all of the tax write offs for daycare providers.
It's your responsibility to educate yourself as well. Tom Copeland is the king of home daycare tax deductions! I read Tom Copeland's book every single year, and I've been doing daycare for twenty years! I have taught my accountant tax benefits by being knowledgeable in my business.
When you file your taxes with an experienced accountant, you'll need your social security number or an EIN number. I highly recommend getting an EIN number from the IRS, it's free, more professional, and protects your identity. You can fill out the forms yourself on the IRS website.
Detailed and organized taxes where your income and expenses are broken down. More about this to come later.
How Much Do Daycare Providers Pay In Taxes
You're self-employed, so you will have self-employment taxes to pay on the income you earn. You have to report all income regardless of whether the family pays cash or not. According to the irs.gov, the self-employment tax rate is about 20%.
Don't let this number scare you! This is where your tax deductions will greatly benefit you and offset that number, hopefully preventing you from having to pay anything out of pocket! Hence why it's key to keep accurate records!
Set A Tax Schedule To Log Deductions
As a provider, I'm sure you have a cleaning schedule; well treat your taxes as a schedule as well. Have monthly, weekly, and daily tasks where you record tax deductions. You may not quite understand why or what you're recording on this schedule yet, but I'll cover more on that part in-depth later.
Monthly:
- Bank and credit card statements
- Amazon purchases
- Store receipts
- Utilities
Weekly:
- Income
Daily:
- Meals served
- Hours worked
- Miles driven (write it down daily in a log, phone, etc.)
Keep your daycare planner open. At the end of the day, quickly jot down the number of breakfasts, lunches, and snacks served in your daycare planner. Then write the hours worked, and include any cleaning before or after in those hours. Once you practice this daily, it becomes second nature and only takes about 1 minute to complete. If you drove for any daycare-related taxes, write the miles driven there and back, along with the time, because that time adds to hours worked, unless it's within normal business hours.
Weekly, record the parents' names and the amount they paid.
Monthly, look at your Amazon account, any online shopping, bank and credit card statements, physical store receipts, utilities, and record the expenses. Print the receipts while you're at it. Then add in your total monthly meals served, make sure to keep breakfast, lunch, and snacks separate, hours worked, income, and total miles driven.
I promise, promise, promise, once you do this monthly and keep on top of your tax records it takes about 5-10 minutes a month!
Organizing Taxes
Keeping detailed and organized records is vital as a business owner! I've already hit on this more than once, but you need to keep track of your income, expenses, and all receipts. If you get audited by the IRS you will have to show proof that you made such expenses.
How do you keep track of all those items? Simple! With an in home daycare tax deduction worksheet or spreadsheet that is tailored to home daycare. The best part about this spreadsheet is that you can print the final annual sheet and hand it over to your accountant, no more taking in a shoebox of receipts or several pieces of paper and being frazzled ever again. Here is a video of a spreadsheet that is specifically tailored to home daycare providers.
Where do you keep all your receipts? Well, not in a shoebox lol! Get a basket that hangs on the fridge. When you complete your monthly tax schedule, grab all of them. Once they are recorded on your daycare spreadsheet or tax deduction worksheet, file them into an accordion file or a manila envelope labeled with the year.
Trust me, it's easier to keep on top of your records from day one instead of waiting until January to rush and figure it all out, I may or may not have done this once or 50 times;).
Home Daycare Tax Deductions
There are several tax write offs for daycare providers. I couldn't possibly cover every single one of them in this single post. However, I'll do my best to cover the big ones.
You'll notice I don't have food listed in either of the categories below. This is because the IRS gives a standard meal deduction rate per breakfast served, per lunch served, and per snack served. They allow home daycare providers to deduct 2 meals and 1 snack each day or 2 snacks and 1 meal each day PER kid. This standard meal deduction rate always blows the actual cost of food out of the water. So, no keeping count and track of every single ingredient that you purchase for food! Just make sure you keep track of the total meals served daily, like I explained in the paragraphs above.
The following tax deductions are 100% tax-deductible because they are all business expenses. This is not an exhaustive list.
100% deductible:
- Wages for employees
- Advertising
- Business Insurance
- Toys (if only daycare uses)
- Craft supplies
- Curriculum & lessons
- First aid supplies
- Licensure fees
- Professional development trainings
- Child proofing supplies
- Furniture (bedding, nap mats, cribs, shelving)
- Bank fees
- Office expenses (if 100% daycare use)
- Accountant fees for the business portion of taxes
Other business expenses are shared expenses because the daycare business is run out of your personal home. Therefore, that means a percentage of these expenses is allowed to be deducted from your business.
This is called time-space percentage. This term sounds extremely confusing; however, your accountant knows how to determine what that percentage is, with a few key record-keeping details from you. You'll need to track the hours worked, know the total square footage of your home, and the square footage of your home that is used for daycare.
Here are some shared expenses; this is not an exhaustive tax deduction list.
Shared expenses:
- Mortgage interest or rent
- Property tax & Homeowner's insurance
- Utilities (internet, cable, streaming services, phone, water, trash, electric, gas)
- Yard maintenance
- Home repairs and/or maintenance
- Furniture
- Office expenses (if shared)
- Cleaning supplies (detergent, toothpaste if brush kids teeth, trash bags, storage baggies)
There you have it, beginner's guide: taxes for daycare! Don't let this part of the business scare or intimidate you. Educate yourself and be knowledgeable in every area of your home daycare business! And keep your receipts!
Related posts:
Understanding Home Daycare Tax Deductions