Day Care Depreciation

Home day care depreciation is a term you need to be familiar with when operating a day care business. The term "depreciation" refers to the fact that an item will lose value over time due to normal wear and tear.

Income

All businesses need to keep records of money taken in and expenses incurred. In the case of a home day care, the money coming in consists of fees parents pay for their child's care. It's good business practice to provide the parents with a receipt. The day care provider should keep a copy for their records as well.

Deductions

To help offset day care depreciation, the home day care provider can claim a deduction for the cost of:

• Food
• Cleaning Products
• Supplies (toilet paper, soap, baby wipes, tissues)
• Toys (paper, stickers, crayons, paint, Play Doh)
• Office supplies (paper, postage, photocopies)

Home Expenses

Since the daycare provider's home is also a place of business, a portion of the cost of rent, utilities, property taxes, and interest can be deducted as a business expense. The formula for calculating the cost of home expenses is as follows:

1. Calculate the total square footage of the house.
2. Determine how many square feet are used for business purposes and calculate the percentage.
3. Count the number of hours in a day that the business is operating and figure out the percentage of time that the business is operating.
4. Multiply the figure you arrived at for space by the number for time.

If the home measures 2,000 square feet and 1,500 square feet are used for day care purposes, then the percentage of floor space used for day care purposes is 75 percent.

If there are 8,760 hours in a year (24 hours x 365 days), and the home is used for 1,800 hours for daycare purposes, then the percentage of time the home was used for business purposes is 20.5 percent. To determine the percentage of home expenses that can be claimed, multiply the floor space percentage by the time percentage (75 percent x 20.5 percent). In this example, the home daycare operator can deduct 15.37 percent of his or her home expenses.

Day Care Depreciation

The cost of purchasing larger equipment items (swing sets, cribs, playpens, high, chairs, etc.) can also be deducted. Under the provisions of IRS Code Section 179, up to $10,000.00 may be deducted for the year the items were purchased.

Income Taxes

The amount of profit the business makes (income less expenses) needs to be reported on the daycare provider's individual income tax return. Social security taxes must also be paid on self-employment income. This figure is also entered on the return and becomes part of the total amount of tax payable.

W-10 Form

Parents also need to be given a signed W-10 form. The completed form is necessary in order to claim credits for child care or dependent-care assistance from employers.

Gome day care depreciation is only one of the items that must be taken into consideration when keeping records for income tax purposes when operating a day care business.

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