Tax Season Tips for Childcare Providers
Are you among the 54% of Americans who dread filing taxes? We feel you.
At LifeCubby, the No. 1 childcare management software, our team is full of former childcare pros who know firsthand the pains of filing taxes as a childcare provider.
Thankfully, tax season doesn’t have to be stressful. With a little preparation (and a few helpful tips and insights), you can make it through with ease.
Here are some of our team’s top tax season tips:
Determine your center’s tax category.
While all childcare programs are taxable, the specific rules and regulations largely depend on which of the IRS’ categories your center falls under. By determining which category your program belongs to, you can better understand the documents you’re required to keep and the daycare business expenses you might be able to write-off. The categories for childcare provider taxes include:
● Kith and Kin: Kith and Kin caregivers are the most informal type of providers and often involve care provided by relatives, friends and/or neighbors. This type of care often takes place in the caregiver’s home or in the child’s home. While Kith and Kin care may be exempt from licensing requirements, any income is still subject to taxes.
● Family Day Care: Family Day Care services typically take place in the home of the provider, are non-medical and operate less than 24 hours a day. These centers have no fewer than four students and are subject to a number of state standards regarding training, health and safety practices and more.
● Childcare Centers: Childcare Centers refer to care given in separate facilities apart from the owner’s home. Most of these programs are organized as corporations, S corporations or partnerships and could have more than one shareholder involved.
Get organized ahead of time.
One of the best tax season tips is to get organized far in advance. Make it a habit to regularly categorize and log income and expenses as they happen. Not only will this help keep your books up-to-date for when tax season finally arrives, but it will also help ensure you don’t lose any important documents or forget to record some of your income. Be sure to keep physical or digital copies of any receipts tied to your expenses as you’ll likely need those for your write-offs (or for any audits your business may undergo).
Once the tax year is complete, make copies of all your documents and store them in a safe place according to your state’s requirements (typically 5-7 years depending on where in the U.S. your center is located).
Prepare for family needs.
Tax season isn’t just stressful for childcare providers — it’s also a stressful time for parents at your center. Families will turn to you at the beginning of each calendar year for an annual tax receipt totaling the amount they spent on childcare the previous year. With that in mind, it’s important to start preparing receipts as soon as possible to give parents adequate time to file their returns.
If you’ve got LifeCubby at your center, pulling these documents is as simple as clicking a few buttons (and takes seconds), but if you’re doing it manually you’ll want to include:
● The name of the parent receiving the receipt.
● The name of the student.
● The period of time services were provided.
● The amount paid by the family for your services.
● Your center’s name.
● Your center’s address.
● Your social insurance number (if applicable).
● Your signature.
Look for deductions when filing taxes as a childcare provider.
As a program director, there are a number of daycare business expenses that may be eligible for a tax deduction. Because finding out which ones you’re eligible for may take some research, we recommend allotting some time ahead of tax season to look into your local, state and federal guidelines. Potential tax write-offs for daycare providers include:
● Employee wages and benefits.
● Banking fees and interest.
● Capital purchases.
● Office supplies.
● Professional fees and membership dues.
● Professional licenses.
● Advertising materials.
● Meals.
● Legal, accounting and other professional fees.
● Vehicle expenses.
● Field trip expenses.
● Child supplies (e.g. diapers, bottles, etc.)
If you operate an in-home program, you may be eligible for additional write-offs for home expenses including:
● Utilities.
● Insurance.
● Mortgage interest.
● Property taxes.
Invest in software that can help.
Whether it’s automating important reports (like income or staff logs), or keeping track of tuition income throughout the year, a childcare management software like LifeCubby can be a lifesaver come tax season when filing taxes as a childcare provider. Not only will it help keep you organized, but it’ll also cut down on the time it takes – by hours if not days – to pull together important documents.
Want to learn more about how LifeCubby’s easy-to-use management software can help make tax season — and every other season — a breeze for your center? Click here to schedule a free demo today!