If you operate a Home Daycare Facility in your
residence, you may qualify for Tax Deductions if
you meet the IRS Requirements!



If you use space in your home on a regular basis for providing
daycare for children, adults who are 65 or older, or for physically or
mentally disabled people, you can deduct the household
expenses

Requirements

To qualify for the daycare facility use rule, you must meet both of
the following requirements:
 
  1. You must be in the trade or business for providing daycare
    for children, persons age 65 or older, or persons who are
    physically or mentally unable to care for themselves.
  2. You must have applied for, been granted, or be exempt f
    from having a license, certification, registration, or approval
    as a daycare center or as a family or group daycare home
    under state law.  You fail to meet this requirement if your
    application was rejected or your license or other
    authorization was revoked.

Determining the Daycare Deduction
The first step is to determine the business percentage of your
home that is used for daycare.  If you regularly use part of your
home for daycare, figure what part is used for daycare, as
explained in our "Business Percentage" section of this website. 

If you use the part of your home exclusively for daycare, you may
deduct all the allocable expenses, subject to the deduction limit.  If
the use of part of your home is regular, but not exclusive, you will
need to figure what part of available time you actually use it for
business. 

A room that is available for use throughout each business day is
considered to be used for daycare throughout each business day.
You do not have to keep records to show the specific hours the area
was used for business.  You may use the area occasionally for
personal reasons.  However, a room you use only occasionally for
business does not qualify for the deduction.

To determine how much you may deduct you will need
to multiply the total costs of your daycare facility by two fractions:
 
  1. The total square footage in the home that is available for
    daycare use throughout each business day and regularly
    so used, divided by the total square footage of the home.
  2. The total hours in the year that the daycare uses the home
    divided by the total number of hours in a year (8760, or 365 x
    24) or 8784 for a leap year.

The resulting fraction is the portion of home expenses that can be
deducted on the tax return for the daycare business.

Example:  You operate a daycare center at home from 7 a.m. to
5 p.m., five days a week, 250 days a year for a total of 2,500
business use hours (11 hours x 250 days).  Your annual home
expenses total $17,000 ($7,000 for interest and taxes, $6,000 for
utilities, garbage, insurance and maintenance, and $4,000 for
depreciation).  The total floor area of your home is 3,000 square
feet, 2,000 of which is used for daycare.  The percentage of
daycare use is calculated as follows:

2,000 sq ft / 3,000 sq ft = 66.67% sq footage used for daycare.
2,500 hours / 8,760 hours = 28.84% of hours used for business use.

$17,000 x 66.67% x 28.84% = $3,268.70.  The full $3,268.70 is
deductible only if net income generated from the daycare facility is
at least that much.

Deducting Meals as Expenses

 To learn about tax rules for deducting meal expenses, click this
link.


Home Daycare Starter Resources
Interested in starting a daycare?  Learn about running a home based
daycare business with these links:
 






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