Important Tax Deductions for Home Daycare and Child Care Providers
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It’s tax time – are you ready? Chances are, if you started a home based child care business in 2007 you are feeling very overwhelmed about your taxes. I know that feeling! I ran a home daycare for nine years and tax season can be intimidating! Whether you are having a professional complete your taxes or you are doing them yourself, there are several things you need to know to help the process go more smoothly.
First let’s talk about the issue of professional tax preparers Gardening versus doing it yourself. Which method is better? I personally have used both methods. The first year I needed to file taxes for my home child care business, I attended a workshop put on by a local community college that dealt specifically with taxes for child care businesses. It was extremely helpful. I would suggest asking around to find out if there is something like that available in your area. You can check with other daycare providers, local community colleges, or child care organizations to see if someone can point you in the right direction. After attending the seminar, I decided to do the taxes myself that first year. I felt like I had a pretty good handle on the situation and professional tax preparers can be costly. I was able to get help from the IRS through their website and over the phone (see website for phone numbers). It takes some patience to get through to them because sometimes the hold time is lengthy, but when you do get through the help is outstanding! That first year I did my taxes the old fashioned way…on paper! I completed them on paper for a couple of years actually.
A few years into my daycare business I chose to have a professional complete my taxes, mostly because of some items to be addressed in our personal taxes that we weren’t sure how to handle. I was relieved to find out that I had been doing a pretty good job with my business taxes! The accountant was able to find a few more deductions that I hadn’t been claiming that proved to be very helpful. After that year, I chose to go back to doing my own taxes, but I decided to use one of the tax software programs. They turned out to be easier than I thought they would be and the online question center was very helpful. I loved that I was able to file my taxes electronically, which significantly reduced my wait time to receive my refund. I continued to complete my taxes using computer software for the duration of my child care business years. Personally, I think that you can successfully complete your business taxes yourself, especially using tax software, and save yourself significant money. It might be beneficial to have a professional do it the first year so you are certain that you are taking all of the deductions you should take. After that, you can look back on the first year taxes as you complete them yourself to ensure that you are completing them correctly.
What sort of deductions should you be claiming? One of the biggest deductions you should be logging is your mileage. This is actually one of the deductions that I wasn’t claiming until I had a professional complete my taxes. I found out that I had been missing out on a huge tax savings by not keeping track of my mileage. I didn’t fully understand what mileage I could claim for my child care business. I thought I could only claim mileage for field trips or training classes. How very wrong I was! A home daycare provider can claim mileage for ANY trip in which child care business is conducted. This means that every trip to the grocery store to buy food for daycare, every trip to buy art supplies or toys, every trip to the bank to deposit child care income, is a business trip and you should be keeping track of your mileage!
Mileage is deductible from your home to the location and back again. That being said, you need to be honest with your mileage calculations. If in one day you first travel to the bank to deposit checks and then you head to the grocery store to buy food before heading home, you can’t count mileage from home to the bank and from home to the grocery store. You need to calculate mileage from home to the bank, from the bank to the grocery store, and from the grocery store to your home to be fair. Just to give you an example of how large a deduction mileage can be…I live in a rural area, so a trip to the grocery store and back for me is about 30 miles. The bank is even further. In an average year, I was able to claim approximately 10,000 miles for a deduction for my child care business! This comes out to be a $3000-$4000 deduction! I know you are wondering what to do if you make a trip to the grocery store to buy both food for your business and food for your family.