Top 10 Tax Deductions for Childcare Businesses

Looking to trim your childcare business tax deductions list and save real money this filing season? This guide walks through the top ten deductions available to childcare providers — from employee wages to home office expenses — so you can go into tax time knowing exactly what to claim. Take advantage of as many as apply to your business, and you will come out owing less to Uncle Sam.

How Childcare Business Tax Deductions Work

A tax deduction is an expense you subtract from your taxable income to reduce what you owe the IRS. The IRS predetermines which expenses qualify, and many are industry-specific.

Fortunately, the childcare industry offers a generous list. However, every deduction hinges on the same rule from IRS Publication 535: the expense must be both “ordinary and necessary” to running your business. Translation — keep your receipts, separate business from personal, and document everything.

Here are the ten deductions to know.

1. Employee Wages

If you employ a team, your staffing costs qualify. Tax-deductible employee expenses include wages and salaries, paid vacation, benefits, and insurance.

One important note: as the owner, you cannot include your own salary in employee-expense calculations. Your compensation flows through a different route depending on your business structure.

2. Daycare Supplies

It takes a lot of specialized supplies to run a center. Fortunately, they are deductible — provided you keep good records. Common tax-deductible daycare supplies include:

Safety supplies
Cleaning supplies
Furniture and equipment
Toys and games
Arts and crafts
Educational materials
Classroom items
Infant care supplies
Kitchen supplies
Childcare technology

In addition, you may want to look at your office supplies next — they have their own rules.

3. Office Supplies

Office costs qualify as long as they meet the “ordinary and necessary” standard. Again, the burden sits with you to keep receipts and separate business from personal.

Deductible office supplies include:

Paper, ink, and toner
Business envelopes, postage, and mailing supplies
Pens and pencils
Office furniture
Office technology
Folders, binders, notebooks, planners, and calendars
Staplers, staples, tape, rubber bands, paper clips, and scissors
Filing cabinets, shelves, drawers, and bins
Safety and cleaning supplies

4. Capital Expenditures

Occasionally, you will make a big-ticket purchase for the center — think playground equipment, a commercial HVAC system, or a bus.

Capital expenditures are purchases made to generate revenue but that depreciate over several years. For example, a $20,000 playground should not hit your P&L in one year. Instead, you spread the deduction over the asset’s useful life. In some cases, Section 179 and bonus depreciation let you accelerate the deduction. Meanwhile, the right choice depends on your tax picture for the year — loop in your CPA before you buy.

5. Food and Beverage Expenses

Most centers provide meals and snacks. As a result, food and beverage costs are deductible.

You will need to track student attendance, the number of meals served, and your daycare grocery receipts to calculate the expense accurately. For many centers, participation in the USDA Child and Adult Care Food Program (CACFP) also affects how food costs and reimbursements flow through the books, so keep that reconciled.

6. Vehicle and Travel Expenses

Expenses tied to a company vehicle and job-related travel are deductible. That includes gas, oil changes, repairs, and maintenance on a company car, as well as travel to professional conferences or a pick-up and drop-off service.

However, your normal commute between home and the center does not count toward the mileage deduction. Track business miles separately from personal miles — a mileage app makes this easy.

7. Bank Fees and Interest

Monthly fees on your business bank account are deductible. In addition, interest paid on any loan you took out to start or grow your childcare business is deductible too.

For example, SBA-backed loans and lines of credit both generate interest that flows through as a business expense. The SBA tax guide has a solid overview.

8. Professional Memberships, Fees, and Licenses

Do you belong to any professional organizations in the childcare industry? Membership dues and organizational fees are deductible.

In addition, the fees tied to your daycare license, state registration, and required background checks are deductible as well.

9. Advertising Expenses

What kind of advertising do you do? From print ads in your local parent magazine to Facebook and Google campaigns, the money you spend promoting your business can be deducted. That includes website hosting, SEO services, flyers, open-house costs, and referral incentives.

10. Business Use of Home

Finally, many childcare owners operate right out of their homes. If that is you, you may be able to write off part of your mortgage or rent, utilities, and insurance — provided you can document the space as business use.

The rules for in-home centers are specific and generous. IRS Publication 587 lays out the standard framework, and childcare businesses actually have a slightly different calculation than other home-based businesses. For the detailed walkthrough, see our guide on how to deduct your home office for your in-home childcare center.

Don’t Stop at Ten — More Credits May Apply

The ten deductions above are the most common, but they are not the only options available to childcare business owners. You may also qualify for:

That adds up to real money — sometimes thousands of dollars per year.

Let the Experts Handle the Detail Work

Feeling overwhelmed trying to sort out which deductions apply to your childcare company? That is exactly what the experts at Honest Buck Accounting are here for. Tax time is our busiest season, so do not wait to reach out. Schedule a call to learn more about our tax services — built specifically for Early Childhood Education businesses.