Navigating complex tax rules for day cares: a guide for pros

Day cares have unique income and expense categories, such as meals, educational supplies and home office deductions, that significantly impact allowable deductions and credits.

With a proper understanding of how to handle these taxes, you can ensure compliance with IRS rules, maximize tax savings and reduce the risk of costly audits or penalties, allowing your clients to focus on their business operations with peace of mind.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: Can the taxpayer count expenses for the children of the day care owner?

A: The owner’s children’s expenses are not part of the business.

Q: For calculating meal expenses for the day care children, can the standard or actual meal method be changed every year, or must the same method be used?

A: The method used to calculate meal expenses can be changed every year.

Q: For in-home day care, do most expenses go on Form 8829, Expenses for Business Use of Your Home?

A: Office-in-home expenses are reported on Form 8829, while other expenses go directly on Schedule C, Profit or Loss from Business.

Q: If you go grocery shopping and buy items for both the day care and your family, do you need to purchase these separately?

A: It would be easier for tracking purposes to purchase separately for the day care. If purchased together, you would need to separate the business and personal items.

To learn more about handling taxes for day cares, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.