Using Your Home As A Daycare

If you use your home as a daycare, you may deduct a portion of the cost of maintaining your home as a business expense. To do so you must be in compliance with state daycare licensing laws, and you must use some portion of your home regularly and exclusively as your place of business.

The deduction for the business use of your home must now be calculated and reported on Form 8829 (Expenses for Business Use of Your Home). It is necessary to complete most of Schedule C before you complete Form 8829. Form 8829 assists you in figuring your business percentage and helps you determine if your deductions are within the home office deduction limits. Then you enter the results on line 30 of Schedule C.

Exclusive Use Test: If you use some portion of your home only as a daycare and not for personal purposes then you pass the exclusive use test. However, if you cannot pass this test, see Daycare Exception to the Exclusive Use Test later.

Regular Use Test: You must use your home or some portion of it for business on a regular basis. If you babysit occasionally, that is not sufficient for you to take any home business deductions.

Principal Place of Business:  Your home must be your principal place of business, where you meet and care for the children.

Direct & Indirect Business Expenses: There are two different kinds of home business expenses. There are those that benefit only your business. These are direct business expenses. There are also expenses that benefit the entire home and only benefit your business indirectly. These include rent, mortgage interest, real estate insurance, homeowner’s or renter's insurance, utilities, depreciation on your home and general repairs. The total amount of your direct expenses may be deducted, but the indirect expenses must be reduced by the percentage of your home used for business.

For more buy the Daycare Pocket Tax Guide....