What expenses can I deduct as home daycare provider when I don't have daycare state license?

[SharonC3 · Accepted solution]

Hi zbricks76,

Thank you for chooosing Turbo Tax.  I am going to attach an IRS Publication regarding Child Care Provider at the bottom of my answer.  This is an excerpt from it:

Family Day Care:  This type of child care is provided in the home of the provider, is nonmedical and is usually for less than 24 hours. Regulations differ from state to state; however, most states regulate facilities that care for more than four children. Most states require family care providers to have criminal background checks, preservice and/or ongoing training as well as state inspection on an annual or random basis. All states set minimum health, safety, and nutrition standards for providers. Where there are government regulatory requirements, the provider is required to be approved, certified, registered or licensed under the applicable state or local law. [Compliance with regulatory requirements may be important as it could affect the deduction for the business use of the home (discussed later) under Internal Revenue Code (“IRC”) Section 280A(c)(4).] Contact the applicable state or local agency for their regulations, which can be found via the link cited below.

Essentially, what you might run into is not being allowed business use of home deductions.  These include writing off a portion of utilities, mortgage interest, depreciation and other expenses directly related to maintaining your home  

The linked article is advising IRS agents that audit such child care providers on how to scrutinize the business. You should read it, it would be very informative to someone providing child care from their home.  

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Child-Care-Provider-Audit-Technique-G...

Here is another IRS Publication that is more general regarding business use of your home:

http://www.irs.gov/pub/irs-pdf/p587.pdf

Thank you for choosing Turbo Tax.  Have a nice day.

[TaxGuyBill]

In other words, does you state require you to have a license for what you are doing?

If so, you can NOT deduct home office expenses (rent/mortgage interest, utilities, property taxes, depreciation of your house, etc.), but you CAN deduct your other expenses.  Check with you local childcare agencies for the laws in your state.

[zbricks76]

Thank you for your answer. I'm not required to have daycare license because I keep low count (less then 5 kids other then mine who are over 2 years old). I kind of thought I won't be able to deduct rent, utilities...but I was hoping I would be able to claim cleaning supplies, wipes, dishes used for feeding, furniture, paint supplies used for my daycare room without raising any questions. I just want to do this right.

[SharonC3]

If you are not required by your state to have a license, you can deduct all normal expenses (cleaning products, dishes, paint, etc. and business use of your home (a portion of mortgage interest, utilities, etc.).  The only thing that precludes you from claiming business use of your home is if you are required by the state to have a license and you do not have it.

[MargaretL1]

Hello,

For the federal tax purposes, if you are a daycare provider, you may not be allowed to deduct certain expenses if you do not have the license, such business use of home- the best course of action would be to apply for one if the state/local law requires it.