Normally, a taxpayer seeking to take deductions for the business use of his or her home must meet the following qualifications: the business use of part of the home must be exclusive, regular, and for a trade or business AND the business part of the home must be either the principal place of business, the place where the taxpayer meets with clients, patients, or customers, or a separate structure not attached to the home.
Qualified Daycare Providers
The rules are a little less stringent for those taxpayers who operate a daycare facility in their homes. If space in the home is used on a regular basis as a daycare center, the taxpayer may be able to take advantage of the tax laws permitting the deduction for the business portion of the home even though the same space is also used for personal/nonbusiness reasons.
In order to qualify for the daycare exception to the “exclusivity” requirement, the taxpayer must be providing care for children, elderly persons, or other individuals who are physically or mentally unable to take care of themselves. In addition, the taxpayer has to have applied for and been granted or been exempted from any state licensing requirements. Not surprisingly, an application that was rejected or a license that was revoked does meet this requirement.
If part of a home is regularly but not exclusively used to provide daycare and the licensing requirements have been met, the taxpayer may deduct a part of home expenses. The amount of space allocable to daycare is determined by calculating the total square footage regularly used for daycare divided by the total square footage of the home (the “space” fraction). To determine what part of the available time is actually used for the daycare business, the taxpayer divides the total hours that the daycare is in operation by the total number of hours in a year (the “time” fraction).
The taxpayer can deduct that portion of direct costs, such as for painting the daycare area, allocated to the daycare space by multiplying the expenditure by the “time” fraction. However, a calculation of the amount of indirect expenses such as utilities that benefit the entire house that are deductible for the daycare business requires a multiplication of the indirect expenditures by both the “time” and the “space” fractions.
Meal and Snack Deductions
A taxpayer providing daycare services can deduct all of the actual cost of food eaten by the daycare recipients and some or all of the cost of food consumed by employees, depending on whether the value of the meals can be excluded from their wages as a de minimis fringe benefit.
If a taxpayer qualifies as a family daycare provider, he can use a standard meal and snack rate instead of tracking actual costs to compute the deduction allowed for food. A family daycare provider gives childcare to eligible children in his own home. Eligible children are defined as minor children (not residents of the home) receiving care in the provider’s home.
The cost of meals and snacks provided to daycare recipients are not included as an expense of using a taxpayer’s home for a business. Instead, they are an expense included in the self-employed taxpayer’s tax return.
Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.