You may use any recordkeeping method that clearly shows your daycare income and expenses, such as hand-written ledgers, spreadsheets, and business software.
Daycare Providers Income and Expenses
Employer Identification Number (EIN)
Even if you operate your daycare business as a sole proprietor or have no employees, you should obtain an EIN.- Instead of your Social Security Number, use your EIN on Form W-10, Dependent Care Provider’s Identification and Certification.
- Use your EIN for your business bank account.
Business Bank Account
Have a bank account that you use exclusively for depositing daycare income and paying daycare expenses.
- Keep track of deposits from your personal funds and of reimbursements you make to yourself.
- Deposit all daycare income, including cash payments, into the business bank account.
- Use a check or debit card to pay for business expenses instead of withdrawing cash.
Business Credit Card
Some options for tracking business expenses that you pay for with a credit card are:
- Using a business credit card exclusively for daycare business expenses.
- Dedicating a personal credit card to the exclusive use of the daycare business.
If you do not have a separate credit card, keep careful track of daycare business expenses that you charge to your personal card.
Daycare Business Records
You may use any recordkeeping method that clearly shows your daycare income and expenses, such as hand-written ledgers, spreadsheets, and business software. You should keep the following additional records.
- Daily time log for the hours you spend in preparation, planning, recordkeeping, food preparation, clean-up, etc., in addition to the actual hours you are available for daycare.
- Attendance, rates, payment history, and meal and snack log for each person in your care.
- Mileage records for the use of your car in the daycare business.
- Home-related expenses
Daycare Income
As a daycare provider, you generally receive income from several sources. Examples include:
- Direct payments from parents or guardians.
- Direct payments from the employee benefit plan of a parent or guardian.
- Subsidy payments from state and local agencies or from charitable organizations for specific children or adults in your care.
- Sales of assets used in your daycare business.
- Grants from state, local, or private agencies.
- Reimbursements for expenses you incur, such as food program payments through the Child and Adult Care Food Program (CACFP).
Reporting Income
All the above items are included in your daycare gross income.
- Grants made directly to your business are generally included in business income. If you spend the grant money in your daycare business, you can deduct those expenditures.
- Most tax professionals recommend that you include reimbursements in your business gross income. You can then claim a deduction for the expenses included in the reimbursement.
Daycare Business Expenses
All businesses are allowed to deduct expenses that are ordinary and necessary for the business. The following list is not all inclusive.
Daycare Expense With Examples
Advertising
- Print and online ads.
- Business cards and business logo items, such as t-shirts, etc.
Auto Expenses
- Business miles (transporting children, shopping, education, meeting with parents, etc.)
- Parking, tolls.
Bank Charges
- Business bank account fees.
- Check printing fees.
Dues, Publications
- Daycare license, membership in daycare organization.
- Daycare magazines and books for you or the children.
Education
- Daycare seminars and classes.
Employee- Related Expenses
- Wages, payroll taxes, workers’ compensation, employee benefits.
- Reimbursement of expenses.
Insurance
- Business liability insurance.
- Daycare rider on home policy.
Legal and Professional
- Attorney for daycare issues.
- Accounting and tax preparation fees.
Office Supplies
- Postage, paper, pens, pencils.
- Record books, calendars.
Rent
- Toy, equipment, DVD rental.
- Building rent (if not operating the daycare in your home).
Supplies
- Business portion of household supplies, such as cleaning supplies, paper goods, etc.
- Children’s food, supplies, games, toys, crafts, etc.
- Diapers, wipes, spare clothing.
Telephone
- Daycare business line.
- Daycare-related extra features added to basic land line.
- Daycare portion of cell phone.
Other Expenses
- Admission to zoo, museum, events, etc. for children.
Daycare Food
Instead of tracking every penny you spend on food for the children or adults in your care, you can use the standard meal and snack rates.
Business Use of Your Home
Part of the cost of maintaining your home may be deductible as a business expense.
- You must be in the trade or business of providing daycare for children, persons age 65 or older, or persons who are physically or mentally unable to care for themselves.
- You must have (or be exempt from having) a license or other approval to operate under state law. If your application was rejected or your license or approval is in a revoked status, you do not qualify for this deduction.
Home-related expenses. If you meet the conditions above, you can deduct the business portion of the following home-related expenses.
Deductible Whether or Not You Are in Business:
• Real estate taxes and mortgage interest.*
• Casualty losses.*
• Qualified mortgage insurance premiums, if available
Deductible Only if for Business:
- Homeowner’s insurance and association dues.
- Rent (if renting your home).
- Repairs and maintenance.
- Security system.
- Utilities and services.
- Depreciation (subject to certain limitations).
Calculating the home business-use percentage. The business use percentage used in deducting home expenses is based on the number of hours spent on daycare activities during the year and the area used regularly for daycare compared to the total square footage of the home. Provide these numbers to your tax preparer to compute the business use percentage.