Daycare Service

2008-07-28 by

Today TaxMama hears from Jodi in California with this question. “I am considering babysitting for my grandbaby in my home for a monthly fee. My son & daughter-in-law want to claim the child care credit on their taxes. Does this mean I’m self employed? Will I have to make quarterly estimated tax payments?”

Dear Jodi,

Yup. It certainly does mean you’re self-employed. Naturally, you’ll be paying taxes on that income.

The good news is, you can dramatically reduce the taxes you pay by learning about tax breaks for child-care providers.

Read the rules IRS outlines in Publication 587 Business Use of Your Home (Including Use by Daycare Providers)

1) You can deduct the use of your home based on the number of hours a year that your home is used as a child-care facility. http://www.irs.gov/publications/p587/ar02.html#d0e1709

2) You can deduct the cost of food you provide your grandbaby. You can either deduct the amount you actually spend – or use. IRS’s standard allowance for each type of meal. Read the details here:
http://www.irs.gov/publications/p587/ar02.html#d0e2146

You might also consider working with a tax professional who specializes in day care services.

Once you learn a bit about how to keep records, and how much your net taxable income will be, you’ll know if you need to make quarterly estimated tax payments. It may turn out that your net earnings, after the tax breaks are low enough that you won’t need to pay much tax on the income at all.

And remember, you can find answers to all kinds of questions about the child care biz and other tax issues, free. Where? Where else? At TaxMama.com

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IRS Publication 587
Chapter 2 - Home-Based Child Care Facility
IRS Publication 587
Day Care facility Meal Allowances

# | Posted in Tax Quips | Comments » (3)



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  1. Brigitte Thompson Says:
    July 28th, 2008 at 06:38 am

    And… for those daycare providers who wish to learn all they can about the recordkeeping required for this unique home business – don't forget our line of books specifically for this profession.

    Tax Mama has reviewed one of our titles on this web site. To learn more visit us online http://www.DaycareRecordkeeping.com

  2. Suzanne Metzger, CPA Says:
    July 28th, 2008 at 08:07 am

    One point that I always make with my clients is to check with their local municipality and health district offices to see if there are any compliance issues (licenses, regulations)to be aware of – usually not an issue with a single child situation but better to be safe than sorry. A local tax professional will often be able to give their clients the 'heads up' on areas other than tax matters.

  3. Thomas Avery Blair, EA Says:
    July 28th, 2008 at 08:48 am

    One other point I might add: Day care fees by established firms are quite high, so don't short change yourself, grandbaby or not. You can indeed allocate a portion of your home, home mortgage interest, utilities, etc. but it is very important to keep records of almost everything and do so in a separate bank account with debit card privilges. Some banks these days will offer free checking to a small start up business…and I do recommend setting the checking/debit card account up for electronic statements and viewing. And do make sure your home is baby-proof as to kitchen, bathroom, and other cleaning products, pesticides, etc. and cover those electrical outlets and put "baby-locks" on doors to places you don't want little kids getting into, and don't keep any appliances anywhere on the premises where a child can climb into it and might suffocate. I concur fully with taxmama and the two others comments…and it wouldn't hurt to actually take a course on day care just in case any one of us overlooked anything you need to know, whether you become licensed or otherwise with your new venture! :) Just my two cents' worth.

    Sincerely,

    Thomas Avery Blair, EA

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