Day Care Tax Deduction

Daycare tax deduction can lighten your burden

If you have set up a day care business in your home, you are eligible for daycare tax deduction. This deduction is valid even if you do not use the premises exclusively for business. What is a care centre by day can well be home by night; and you will still be eligible.

However, it is important to know what qualifies as daycare. When you provide care for children or individuals incapable of looking after themselves because of physical or mental impairments you are in the daycare business. But to run one, you need to have valid certifications or exemptions. If, however, you have had your license revoked or application rejected, you are not eligible to run a daycare centre.

When you run a daycare facility there are certain things you must keep in mind before calculating your deductions. First, you are entitled to deductions related to the premises from where you operate, in this case your home.

You need to find out exactly what portion of your house you use for business and, with what frequency. If you use the premise exclusively for daycare then
you are eligible to deduct all expenses, subject to the stated limits. However, if the usage is part business and part personal then you have to state what
percentage of the total use is for business.

This does not mean that you have to log hours physically and maintain records of the same. Lets say you run a crche for children in your basement, for x hours a day, every weekday. You may use the basement for personal use for the rest of the time, it does not matter; you are eligible to show the time used and claim deductions. If however, you were to use the basement only occasionally for babysitting, you could not claim it as an expense.

Now along with the basement you could well be using another room in your house where children could take a nap. Though the room is unlikely to be used all the time, you need to keep it available through the business day. This room therefore also qualifies as an expense head and is eligible to figure in your
deduction. All expenses related to the maintenance and upkeep of these rooms should figure in your expense list.

If you qualify as a family daycare provider then you can claim deduction on expenses made on providing meals and snacks. If you have employees, you can deduct 100% of their food cost as expense, provided that their salary does not include a food component. If you provide snacks and meals to your wards then to claim deductions you need to maintain records of consumption and show them to be exclusively for the daycare centre. Since your own household is fed from the same kitchen it may be a difficult process to follow. It is advisable therefore to show the standard rate for meals and snacks as expense, and claim deduction.

Standard rates are applicable per person for breakfast, lunch dinner and three snacks per day. These rates include beverages but not non-food material that may be needed to prepare or serve the food. Such utilities, however, can be shown as a separate expense.

So while daycare can be a taxing business, a little care could make sure that the taxes dont make you feel so. Plan ahead and you could take care of it all!

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