What’s Deductible in a Family Child Care Business?

6a0133f3fc5805970b01774494b80b970d-320wi

Are you a new family child care provider who wonders what you can deduct as a business expense?

Or are you an experienced child care provider who wonders if you are claiming all the business deductions you are allowed?

Family child care is a unique business in which you can deduct hundreds and hundreds of items for your business. No other home-based business can deduct what you can deduct.

Let’s look at the general rule about claiming deductions.

You are entitled to deduct all expenses that are “ordinary” and “necessary” for your business. An ordinary expense is one that is “common and accepted” in a family child care business. A necessary expens is one that is “helpful and appropriate” in a family child care business. (See IRS Code Section 162a)

An expense doesn’t have to be indispensable for it to be considered “necessary.” In other words, you can deduct part of the cost of a dishwaster that is used to wash dishes used by the children, even if you could wash dishes by hand.

Here’s a partial list of expenses that could be considered “ordinary” and “necessary” for your business:

House expenses – property tax, mortgage interest, utilities, house depreciation, house repairs, and house insurance

Furniture/appliances – washer, dryer, refrigerator, microwave, stove, dishwasher, rugs, sofa, tables, beds, chairs, tv, dvd player, lawn furniture, service contracts on furniture and appliances, etc.

Household items – light bulbs, toilet paper, cleaning supplies, paper towels, laundry detergent, doorbell, welcome mat, clocks, etc.

Home improvements/repairs – fence, patio, remodeling, new furnace, garage door opener, new floors, insulation, snow removal service, etc.

Children’s supplies/equipment – arts and crafts, toys, playground equipment, floor mats, cribs, curriculum, etc.

Other: food expenses for the children, car expenses (use the standard mileage rate ($.575 for 2015 and $.54 for 2016) or the actual expenses method), computers, wages to employees, advertising, etc.

My book, Family Child Care Record Keeping Guide lists over 1,000 allowable deductions!

Whether you can deduct a specific item depends on whether or not you use it in your business. If you use a sewing machine to make items for the children in your program, you can deduct part of its cost. If you don’t use your sewing maching in your business, you can’t deduct it.

It doesn’t matter why or when you bought an item. If you bought a toy for your own child’s birthday but she plays with the toy with the day care children, you can deduct part of the cost. If you started your business in 2012, you can depreciate all of the items you owned in your home before your business began, as long as you do use them in your business this year. (See my article “How to Conduct a Household Inventory to Save Money.”)

Consider this: You are running a business that provides a home environment for children to learn. Parents expect you to maintain your home as a home. Therefore, you can deduct the costs associated with maintaining/repairing/cleaning your living room, bathrooms, kitchen, play rooms, storage rooms, garage, and so on. This is what makes your business unique.

Unfortunately, this also means that some tax professionals don’t recognize what “ordinary” and “necessary” means in your business. I’ve seen many situations where child care providers had to educate their tax professional (and sometimes the IRS!) as to what ordinary and necessary means to their business.

Note: This article discusses what you can deduct, but not how much of an item you can deduct. If you use an item 100% for your business, you can deduct all of it. If you use if for both business and personal purposes, you can deduct part of the cost. See my article on the Time-Space Percentage.

In conclusion – Because of this broad definition of what you can deduct, make sure you save receipts for everything associated with your home! It’s probably at least partly deductible.

Tom Copeland – www.tomcopelandblog.com

Image credit: daycarebusinessplan.net

Record Keeping smallFor more information, see my book Family Child Care Record Keeping Guide.



Categories: Deductions, Record Keeping & Taxes

Tags: , , , , ,

18 replies

  1. Do I have to be licensed to get all the deductions you are talking about?
    Thank you

  2. If you are exempt from your state child care licensing rules you can deduct the same expenses as if you were licensed.

  3. My tax preparer told me that he can not depreciate all my kitchen inventory. He told me that is not sense how can depreciate the use of a spoon.
    Is that correct?
    Thank you.

  4. You are entitled to depreciate all property you owned before your business began and then start using in your business. Yes, it doesn’t make sense to depreciate one spoon. It does make sense to depreciate hundreds of items. The IRS Child Care Provider Audit Technique Guide makes this clear.

  5. we are looking into buying a new 12 passenger van specifically for my rf child care, what write offs would I have? Is it only mileage?

  6. You can either use the standard mileage rate or the actual expenses method to claim car expenses. If you use the standard mileage method you can deduct $.56 a mile for 2014, parking, tolls, and the business portion of car loan interest and annual property tax. If you use the actual expenses method you can deduct the business portion of all actual expenses – gas, oil, repairs, insurance, parking, tolls, car loan interest, property tax, and depreciation on the car.

  7. Is insurance tax detactable

  8. My grandmother owns a childcare business, she want s to buy a car. can a car be listed as an expense?because it would be used to buy buy monthly groceries for the children.

    • Yes, she can deduct expenses associated with a car. She can either use the standard mileage rate ($.54 per mile for 2016) or save receipts and deduct the business portion of her actual car expenses.

  9. I have been told you can put the time spent cleaning as well as cooking (i meal prep during time my daycare is closed).How do I go about doing this?Thanks

  10. What would you do if you bought a new Suburban, actual or the mileage deduction? Not sure what would be better. I don’t plan on getting a new vehicle after this one for a very long time.

    • There is no simple answer. Most providers use the standard mileage method because it’s simple. Many providers would be better off using the actual expenses method, but it’s more work to save all the receipts. If you choose the actual method then you’ll have to use this method for this car forever. If you choose the standard method in the first year, you can switch over to the actual method in later years. You can see which method is better for you in the first year and then make that decision.

  11. Can I deduct these same things if I am providing care for free because a friend can’t afford childcare? I am supplying food and things that are needed in my home for them.

    • You can deduct these expenses if you are offering free care as part of the service you are providing as a business. In other words, this is a business decision to help this family, rather than a personal one.

  12. The link that should direct me to another article about time/space % is broken 😉

  13. I fixed the broken link. Thanks for pointing this out!

Leave a Reply to cheryl bautista Cancel reply

Your email address will not be published. Required fields are marked *