Tax Advantages You Need to Keep In Mind

Small CCP teaching children  (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

 Jill Stimson, Demand Media for the Houston Chronical

“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.]

[CCTS Says:  Read our post on “how to calculate time percentage” /Please check out our blog on this subject. All of our documents are free, downloadable and toner friendly.  Just click here.]

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.

To read this blog in its original format and location Tax Advantages Home DayCares

IRS FORMS   Exclusive Use Rule   POLICIES  & PROCEDURES   Checklists, Mail & Mileage Logs   IMPORTANT TAX DATES   Articles & Books   GLOSSARY OF TERMS   Childcare Provider  BLOG BLOG  Crime Prevention and Emergency Handbook
Home Fire Safety Self-Inspection Checklist   TAX INTERVIEW CHECKLIST
Child care provider medical safety checklist   Provider Meal and Snack Log
The Baby Name Wizard

For more than 30 years R. Patrick Michael has been preparing tax returns for individuals, small businesses, cottage industries and in-home child care providers. Pat is a recognized child care provider tax expert, and has been providing educational seminars for child care providers in San Diego County for the YMCA Child Resource Services for more than 18 years.  Pat and his team have built a following that is comprised of long-term clients, new relationships and word-of-mouth referrals. Child Care Tax Specialists take care of their clients year-round with tax preparation, business entity creation and support, as well as tax planning for retirement, and estate planning.

NEED HELP?  CALL (619) 589-8680 TODAY!