daycare taxes guide

Childcare Provider’s Guide to Tax Season

It’s upon us again, that time to start gathering all of the bits and pieces to get ready for filing your income taxes! Whether you are preparing your own tax return or planning to employ a bookkeeper, accountant or tax agency, this can be a very stressful time of year. 

The good news is that it really doesn’t have to be! With a little preparation and organization, you can be well on your way to being one of those happy, annoying people who always have their taxes done on time.

Getting Ready

Being prepared for tax time does takes a little initial organization, I have to be honest about that. But if you are anything like me, I would much rather invest in a few steps initially to save myself stress later on.

One of the most effective ways I have found to stay organized is to track income and expenses, categorizing and logging those items shortly after they occur. This will help lower the chances of losing a receipt or forgetting to record a payment, and will also keep the books up to date when tax season arrives as it inevitably will. There is no hard and fast way to do this, each person will have a method that suits them, and there are many software programs available for childcare facilities to track income and expenses. Even if you choose to go the route of hiring your books and taxes out, there is still a level of initial organization required so it is a good idea to figure out a method that works for you.  

Pro tip: Always keep copies of all of your receipts and records! Just recording it all is not enough and if at any point your childcare business undergoes a tax audit, you will need to provide proof of all of the claimed expenses. You must keep your records for a period of 5-7 years depending on which country you are in. It is permissible to store copies of receipts electronically or on paper. It won’t matter which method you prefer as long as the documentation is available.  

What Information Parents Need From Their Childcare Provider

Childcare providers not only have their own taxes to worry about they also need to ensure they have looked after their families from the past and present. Now is the time that currently enrolled families and those recently departed from the program will be getting in touch looking for a tax receipt.  It is up to the childcare provider to provide an annual tax receipt totaling the amount spent on childcare over the past year. 

In the U.S. and Canada, families may be able to claim a percentage of their annual childcare expenses as a tax deduction. A tax deduction is an expense that is deducted against an individual or business’s income. Deductions can mean significant savings for families, and for this reason, it is important to provide the families with a timely receipt totaling their yearly financial commitment from January 1 to December 31st the preceding year.  

Usually, it is a good idea to prepare the receipts as soon as possible so the families have time to file their income tax returns. In some regions, the last day of February is when employers need to have issued employment information necessary for filing a tax return and this is a good date to aim for when issuing receipts. 

When preparing a tax receipt for families it is important to include the following information:

  • The name of the person for whom you are preparing the receipt
  • The name of the child of the person for whom you are preparing the receipt
  • The amount received for childcare services
  • The period childcare was provided services 
  • Your name or business name
  • Your address
  • Your social insurance number (family or in house childcare providers)
  • Your signature
  • The date you signed the receipt.

What The Center Needs To Do To Prepare

Now that the families have been issued their receipts, it is time to gather the records of expenses for the childcare facility.  Some of these expenses may be eligible for a tax deduction. As a business, there are tax deductions that may benefit you, but please be sure to check into your local municipal, provincial, territorial and federal and state laws and regulations to find out which ones specifically apply to you. You can get information specific to your country or region from applicable Government departments and agencies. 

Some childcare business expenses that may be considered for a tax deduction depending on your country, province, or state are:

  • Employee salary, wages and benefits
  • Bank fees and interest
  • Advertising
  • Professional development/continuing education
  • Furniture and equipment
  • Meals
  • Utilities
  • Insurance
  • Supplies necessary for carrying out the business (ie: office supplies, baby wipes/diapers)
  • Business tax, fees, licences and dues
  • Memberships and subscriptions
  • Legal, accounting and other professional fees
  • Field trips
  • Motor vehicle expenses 

If you are running a childcare program out of your home, you may be eligible for business-use-of-home expenses. If you use your home for your childcare, you may be able to claim part of the expenses incurred for operating and maintaining your home. These expenses may include:

  • Heat, electricity, water
  • Insurance
  • Maintenance repairs if you can show that the damage is from running childcare; and an insurance company did not pay for the repairs.
  • Mortgage interest
  • Property taxes 
  • Rent
  • Telephone
  • Rooms for childcare use only. If you use one or more rooms, including any in the basement, exclusively for childcare, you can determine the amount to claim based on the area of your home.
  • Rooms for part childcare/personal use may be included based on a percentage of hours the rooms are used for each use.

Best of luck with your tax filings this year! It can definitely be an overwhelming process, but just remember to be patient and check all of the requirements off your list one at a time. You’ve got this!

Plan your budget more effectively with our free template!

budget template for childcare providers

Kristen Hunt

Kristen Hunt is a Licensed Early Childhood Educator and Professional who has worked in a variety of different environments during her 30-year career. A life-long learner, Kristen has an educational background in ECE, Montessori, Human Resources, Community Care Licensing, Violence Prevention, Harm Reduction, Reconciliation, and is also a registered Kindermusik and Yoga Instructor.

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