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Daycare Providers Income and Expenses

Jan 01, 2023

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 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.

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.

 

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