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Child Care Tax

[Advisory: I am not a legal child care tax accountant – this information is provided as a general outline of taxes related to daycare services and should not be construed as legal advice.]

Paying child care taxes on your services rendered is required as a licensed daycare provider in the U.S. You will need to meet certain tax obligations based on your state and federal tax laws. The taxes you pay will depend upon the type of legal business structure you choose for your business.

The most common legal structure for a home daycare center is the Sole Proprietorship. With this structure you will use the Schedule C of the Individual Tax Return Form 1040 to document your income and expenses. It’s essential that you maintain excellent record keeping while in business to record your expenses and earnings.

A good way to record your child care earnings is by recording every daycare payment in a record book or online business accounting software program such as Quickbooks. Regardless of whether the client pays by cash or check you should record each transaction for your records.

It may be a good idea to open a separate bank account to keep your income deposits and withdraws separate from other sources of income. All funds for daily operations should generally be withdrawn by check.

Your child care tax records for income should include the following details:

  • Customers’ name
  • The date of payment
  • Amount of time covered by payment
  • Total amount of payment
  • Receipt number

when handling daycare expenses you will want to always save your receipts. These expenses can often be tax deductible if they contribute directly to your child care center. Having all of your receipts kept in a file for tax time will definitely help you come tax time.

You should consider saving receipts for all daycare purchases for:

  • Daycare utilities
  • Playground equipment
  • Child care activities
  • Child care toys
  • Food and drinks for children
  • Advertising costs
  • Legal services you’ve spent on the business
  • Computer or software for the child care business
  • Daycare related travel
  • Mileage and gas receipts when traveling for the daycare
  • Office supplies
  • Check with an accountant for more suggestions

The laws and regulations about handling child care taxes constantly change so it’s important to stay updated. Contact the IRS for more information about daycare tax or contact a lawyer or accountant for more help.

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