ChildCareTaxSpecialists.com (CCTS) is always looking for informative content to help you with your in-home business. The fact that your business of child care has the greatest opportunity to maximize deductions for your home business, makes it all the more important.
[CCTS Says: before you start to read, you might want to take a look at our FREE GUIDE The World of Child Care Providers Taxes & Recordkeeping. You will also want to check out our FREE checklists and templates for keeping records. All of our documents are free, downloadable and toner friendly. Just click here.]
Tax Advantages for Home Daycares
“Starting a home daycare business is a good option for parents with young children, retirees and for taxpayers who enjoy working with children. Furthermore, the Internal Revenue Code provides home daycare owners with a way to reduce their individual and business income tax liabilities. Home business owners can use their businesses as a large tax shelter.
Home Business Tax Shelter
As noted by Nolo, owning a home business is one of the largest tax shelters available to taxpayers. In addition to deducting mortgage interest payments, points, property taxes and interest on home improvement loans, taxpayers with home daycare businesses can also claim a home office deduction. The Internal Revenue Service (IRS) allows taxpayers who own businesses, including home daycare companies, to capitalize the costs of their business expenses. The IRS allows home daycare owners to deduct their indirect and direct business expenses on their federal business tax returns.
Direct and Indirect Expense Deductions
Taxpayers can deduct the entire costs of the amounts they spend for their direct expenses. Direct expenses are costs that taxpayers incur to benefit their clients — in this case, children. As such, direct expenses include food, beverages, books, toys, crafts and other types of activities that benefit only children. In comparison, indirect expenses benefit individual taxpayers and their clients. Examples of deductible indirect expenses are utility expenses, homeowners’ insurance expenses, real estate taxes and the costs of necessary repairs.
[CCTS Says: Please read our blog on home office deductions.]
Home Business Space Deductions
The IRS allows daycare providers to deduct the part of their homes used for their daycare businesses. Taxpayers can deduct the portions of their homes as business expenses if their main occupation is providing daycare services, and they have met the requirements as licensed daycare facilities under their states’ laws. However, since some states do not require daycare providers to obtain business licenses or certifications, taxpayers in these states are exempt from the licensing requirements.
Calculating Home Business Deduction
To calculate the portion of their homes used for business purposes, the IRS requires that taxpayers determine the amount of time they spend in those areas to provide their daycare services. Taxpayers can deduct specific rooms if they use those rooms regularly to provide their daycare services, even if they use these rooms for personal, non-business use. Taxpayers are not required to log the number of hours they spend per day in specific rooms providing their daycare services. tubemate download for iphone However, daycare providers cannot deduct rooms used for business only occasionally. The IRS provides a straightforward method of calculating the allowable tax deduction by multiplying the total square footage used for business purposes.FIFA World Cup 2018
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