It’s Tax Time! Here’s How to Categorize Family Child Care Expenses
Tax season is here, and one of the most common questions family child care providers face is: "What expense category should I put ________ under?" Whether entering expenses into software like KidKare or Quicken, completing a tax return, or organizing records for a tax preparer, it can be challenging to determine where each expense belongs.
The important thing to remember is that it doesn’t matter what expense category is used for each purchase!
All expenses will eventually be listed on IRS Form 1040, Schedule C, and the specific line they appear on won’t impact the total tax owed. The goal is simply to organize expenses in a way that is clear and makes it easy for tax preparers or accounting software to transfer the information onto the proper forms.
Expense Categories for Family Child Care Providers
To simplify the process, here is a suggested list of expense categories to use when organizing records. These categories align with the tax forms they appear on, helping ensure that expenses are categorized properly for tax reporting.
Schedule C Expenses:
Advertising
Car/Truck Expenses
Contract Labor (for someone who didn’t provide child care services, or who served as a substitute)
Business Liability Insurance
Credit Card Interest
Legal/Professional Services (lawyer, tax preparer fees)
Office Expenses
Rent of Equipment (excluding vehicles)
Repairs/Maintenance of Non-Household Items
Supplies
Taxes/Licenses (license fees, personal property taxes, payroll taxes)
Travel/Meals (for attending conferences, overnight travel)
Wages (for employees, not contract labor)
Food
Household Items
Cleaning Supplies
Activity Supplies
Toys
(Note: The last five categories are designed to accommodate expenses that don’t fit into other Schedule C categories. These should be listed under "Other Expenses" on the back of Schedule C.)
House-Related Expenses:
Real Estate Taxes
House Insurance
House Rent, Repairs/Maintenance
Utilities
Other House Expenses
House Depreciation (Form 4562)
Office Equipment (computers, printers, fax machines, etc.)
Furniture/Appliances/Equipment
Fence/Driveway/Patio
Home Improvements
Home (Note: Items under $2,500 should be entered on Schedule C as "Other Expenses" rather than depreciated on Form 4562. For example, computers or furniture costing less than $2,500 should be listed as "Other Expenses" on Schedule C.)
Additional Guidance
These categories are simply a suggestion, and it’s not mandatory to follow them exactly. Providers can create custom categories for their expenses and list them on the back of Schedule C under “Other Expenses.” Tax preparers may have their own preferred categories. For those using KidKare, the software automatically lists categories in the order they appear on the tax forms, with the option to include additional custom categories. The Redleaf Calendar-Keeper also organizes expenses by Schedule C categories, including extra suggested categories.
By using these categories, family child care providers can streamline the tax filing process and ensure that all expenses are properly accounted for.
