Time/Space Percentage

• Calculate your time/space percentage. This figure helps you to figure how much certain expenses shared by your business and your family can be deducted. To get this figure, you will need to begin by calculating the number of hours your home is used for business for one year and divide it by 8,760, which is the total hours in one year. This is your time percentage. Now take the total number of square feet in your home used for child care and divide by the total square footage of your home. This is your space percentage. Finally, multiply the time percentage by the space percentage to get your Time/Space percentage.
  
  

Food

• You can deduct the food purchased for your daycare on your taxes as a direct business expense. Keep your receipts separate from your own personal groceries for your family. You also can use the standard rate that the IRS uses instead of tracking every receipt. This is the same rate used for providers that are on the CACFP program (Child and Adult Care Food Program). Each meal has a dollar amount that the federal government assigns and the rate is determined by where the provider lives.
  
  

Other Direct Business Expenses

• Other direct business expenses that you can deduct on your home daycare taxes include advertising, bad checks, vehicle expense, liability insurance, legal fees, office expenses, home repairs, supplies, taxes and licenses, employee wages, activity expenses, toys, gifts, food preparation materials, cleaning supplies, and phone service.
  
  

Indirect Business Expenses

• Indirect business expenses are the costs associated with your home. This includes mortgage interest, house insurance, utilities, house repairs, and maintenance. You can deduct a portion of these items by using your time/space percentage.
  
  

Capital Expenditures

• These deductions are items purchased for you business that are over $100 and wear out gradually over time. Items such as your house, home improvements, furniture, appliances, yard equipment, office equipment, TVs, VCRs, and automobiles. This type of tax deduction is called "depreciation," and you may deduct only a years worth of use instead of claiming it as a business expense.