Helpful Resources & Worksheets
Business Licenses- Obtain EIN to protect your Social Security Number
- Importance of Good Record Keeping
- Standard Meal Allowance vs Federal Standard Meal Allowance
- Business use of Home: How to Maximize
- Auto Expenses: All Records or Standard Mileage Rate
- Preparing and Reporting Form 1099-Misc for Sub-Contractors
- Start-up costs
- Home Inventory
Business Licenses needed by Child Care Providers in California
Social Service Licensing Link: Visit Social Service Licensing Link »
Most Home Based childcare providers should register with the California Department of Social Services. This is your primary and most important license; to obtain prior to opening the door to care for children
A License is not necessary if the children are all from one family or are related to the Care Provider; in California.
Note: unlicensed providers are usually not eligible to treat a percentage of their home expenses as a business expense for tax purposes.
Obtain EIN to protect your Social Security Number
Quick and Easy Employer Identification Number (EIN) Application Process:
- Apply Online: Visit IRS Link »
- Step by Step Instructions on how to fill out the application (Form SS-4).
- Question 1: Choose Type of Business you are applying for.
- Select: Sole Proprietor
- Question 2: You have chosen Sole Proprietor. Sole proprietor includes individuals who are in business for themselves or household employers
- Select: Sole Proprietor
- Question 3: Why is the Sole Proprietor requesting an EIN? Choose one reason that best describes why you are applying for an EIN.
- Select: Started a New Business (even if you have been in business for a while)
- Question 4: Tell us about the Sole Proprietor
- Fill in your name and SSN then Choose Sole Proprietor
- Question 5: Where is the Sole Proprietor physically located?
- Fill in your business address and phone number
- Question 6: Tell us about the Sole Proprietor.
- Review the Details. If your Sole Proprietor name is different than showing: Enter Business Name on the second line: Trade Name/Doing Business As
- Fill in the Start Date
- Question 1: Choose Type of Business you are applying for.
Once you have reviewed the details and selected the start date. Click Continue and on the next screen, you will automatically be issued your Employer Identification Number (EIN). Be sure to Save Image of the Letter onto your Computer Hard Drive in PDF Format.
Set up a Good Record Keeping System
Plan to set up a Good Record-Keeping System before opening your new business. We present three basic systems at our Two Hour Tax Workshops.
- Manual System of File Folders or Envelopes using expenses listed on our Free Deductions Worksheet available to our clients
- Our custom-designed software: MinuteBooks Records
- Categorizing your business and home expenses
- Categorizes your Business & Home Expenses
- Tracks Attendance
- Records Time Worked in Home
- Helps total the meals served to the Children
Set aside time to organize your receipts at least monthly. Leaving to the end of the year will be overwhelming and could cause errors and lost deductions. Start this pattern before caring for children will retain records of the costs involved in beginning your business.
Our customized Child Care Providers Deductions Worksheet is a good guide for tracking all tax related transactions and information. Using it as a guide will allow us to prepare your tax return to obtain the lowest tax possible.
** Our web-based Record Keeping Workbook includes many Child Care business management features, as well as;
Categorizing your business and home expenses- Invoice parents
- Track attendance, time worked, and meals served
- Generates helpful reports
- Totals expenses for end of the year.
Standard Meal Allowance / Federal Meal Reimbursement Program
All childcare providers outside Alaska & Hawaii, are entitled to use these “Per Diem” rates. Our clients can use our “Meal Tracking Form” to Increase your tax deduction by using Per Diem Meal Rates listed below: (all meals served) vs. reimbursement from Federal Food Program Limited to 3 per day per child:
- Program Reimburses to Child Care Provider
- Two Meals per child per day
- One Snack per child per day
- May Claim as an expense on Tax Return
- 3 Meals per child per day
- 3 Snacks per child per day
Tier I rates - All states except AK & HI
| Coverage Period | Breakfast | Lunch and Dinner | Snack(s) |
| 2024 | Coming soon | Coming soon | Coming soon |
| 2023 | $1.66 | $3.04 | $0.97 |
Tier II rates - All states except AK
| Coverage Period | Breakfast | Lunch and Dinner | Snack(s) |
| 2024 | $0.59 | $1.88 | $0.25 |
| 2022-2023 | $1.66 | $3.04 | $0.97 |
Rates for reimbursement issued by Federal Government for Tier 1 Food Program reimbursement from July 1 to June 30th of the Fiscal Year (Example: 2021 from July 1, 2020 to June 30, 2021) – In Continental U S.
Business use of Home: How to Maximize
The residence used to conduct Child Care is the largest tax deduction on the tax return and is often not used correctly. Following are brief guidelines of what to provide to Professional Child Care Tax Preparer:
- Time spent on the Child Care Business in TOTAL should be recorded
- Time when Children Supervised from 1st child arrival to last child departure every day
- Time spent on Child Care Business with NO CHILDREN IN YOUR HOME
- Cleaning for business when no children present / Related Setup of Equipment
- Preparing & Planning meals/snack or activities when no children present
- Interviews or discussions with parents outside Care Hours
- Recording/Organizing Business Records & Reports
- Research & Purchasing on the Internet
- Total space used for Child Care – In Square Feet – during hours of Child Care Supervision
- Total Space of the Entire Home
Total Square Footage (Space) used for Child Care Service Every Minute of Every day
- Books Storage shelves
- Toys Containers
- Toys parked on side of walls or in closets
- Toddlers Cribs, Furniture never moved
- Child Tables & Chairs
- Child High Chairs strapped in a chair all the time
- Child Care Supplies stored in cabinet or closets
- Exclusive Child Care Room never used by family in off Child Care hours
- Garage Storage of Supplies/Inventory used for Child Care
- Residential Expenses: Structure & Land Based
- Mortgage Interest (Form 1098; Principle & HELOC)
- Property Tax / Homeowners Association Dues
- Rental (Monthly Lease)
- Building Repairs, Improvements & Maintenance
- Yard and/or Pool Maintenance/Improvements
- Insurance (Home: Fire or Damage)
- Depreciation of Building (not if Leasing) &/or Equipment
- Operational Expenses (Utilities, Services & Supplies)
- Electrical, Water & Sewer, Disposal Bills ** (Note on Water Use)
- Heating Fuels: Propane, Natural Gas
- Cable TV; Computer (Internet: Wireless)
- Entertainment: DVD, Ipad, Tablet Computer, Piano, Tape Recorder
- Toys & House/Yard Cleaning Supplies
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Note on Water Use:
We prepare Tax Returns for Child Care Providers and Public Safety Dog Handlers. Both activities can use water above normal use patterns. This should be added to your tax return deductions.
Count the number of family members in contrast to the number of children in your care during the average day to determine the amount of water used for handwashing, clothes washing, and toilet flushes. (You can also count employee water usage during business hours.) Water Play activity should also be included to estimate the amount of water used on those days. These are just ideas of water use; record if another use comes to mind.
If your Child Care Service has just started it is likely that the bills before & after could be compared to determine the increase in the cost of water that should be apparent. Document the increase in the amount of water used (either each month or over an entire year) and figure out what percentage of your total water usage that represents. Be sure to provide this information to your Tax Professional.
Auto Expenses: All Records or Standard Mileage Rate
We encourage recording of your vehicle mileage in our “Free” Vehicle Mileage Recording Handbook. Most cars or vans used by Child Care Providers average more than 25 mpg. The Federal Standard Mileage Rates usually result in a better tax deduction. Recording the odometer reading at the start of each trip is easy and simple. Keep the recording booklet in your glove compartment.
Following are the Standard Mileage Rates for driving your vehicle for any and all Child Care Trips necessary and ordinary in your business:
| Tax Year | Federal Mileage Rate |
| 2023 | Coming soon |
| 2023 | 65.5 cents a mile |
NOTE
Allowed to additionally claim: Parking, tolls, and Business Use Percentage of Vehicle Loan, and License Fee: Calculated to Business Use percentage of entire vehicle use.
Actual Expense Method requires retaining expense records for the following in addition to the business miles driven:
- Fuel, Oil, & Lube
- Tires & Repairs
- Insurance
- Vehicle Loan Interest
- Depreciation, etc
Preparing and Reporting Form 1099-Misc for Sub-Contractors
Business owners are required to provide Form 1099-MISC (with copies to the IRS) to anyone paying $600 or more for services in the tax year.
Form 1099-MISC should be provided to the contract workers (recipient) by January 31st.
- When it’s not required to send a 1099 form
- You included the payment In a W-2 form (to an employee)
- The payment is for a product such as (office supplies, furniture, etc)
- The recipient is a Corporation
- Earnings of less than $600
- Rules surrounding requirement to send a 1099 form
- Independent contractor should fill out a Form W-9
- Taxpayer Identification Number (Social Security Number – or Employer Identification Number(EIN))
- Taxpayer Address
- Payers Business Information: Taxpayer ID, Name of Business
Require a completed W-9 before engaging the services. If the contractor is paid first, then refuses to provide a W-9; file the 1099 without the tax ID number if the paid person’s address is known. Then IRS will know that compliance was attempted.
- Filing forms to the IRS
- Send copies of all 1099 forms sent to whom was paid for services over $600
- Report the total of all 1099’s issued on form 1096
- Mail to the IRS by February 28th. E-File Deadline is March 31st
What happens if you don’t send a form 1099-Misc?
Failing to file a 1099 form to anyone paid over $600 in the year, may result in losing the deduction and a $50 penalty for each 1099 for not filing.
Start up Costs
Many Child Care Providers receive their childcare license after they purchased many items and supplies well prior to officially opening the business. Tax Law allows for “Start-Up Expenses” or “Start-Up Costs”. These are allowed deductions. Keep copies of receipts and have trackable proof such as checks or Credit Card Statements. If this is the prior tax year, the child care provider may claim it on the year of opening or the year of purchases. Expenses against No Income may stand out as odd; but it is allowed. Up to $5,000 may be claimed as Start-Up expenses on the Tax Return. Expenses that exceed $5,000 should be spread out over a 15-year schedule (amortized).
In most cases we recommend a child care provider’s business start date be either the day the provider started caring for the children or the day they were ready to care for children. It could also be when the promotion of the business started or enrollment in the program opened.
Unlicensed child care providers may report their business income/expenses and file tax returns; By Tax Law, deduction of the Business Use of Home is not supposed to be reported if not licensed.
Steps to organize records:
- List of items (equipment, furniture, play structures, etc.) that cost $100 or more.
- Make Notes
- Purchased before or during the first year of business.
- Include a description for each item:
- Cost
- Date of purchase
- If purchased before your start date,
- Estimate the item’s resale value currently
- Total all Items purchased prior to opening business: Start up expenses
- Separate into two categories
- 100% child care expense
- Shared : Personal or Child Care Expenses
Home Inventory
Could reduce your taxes significantly
The Home is the workplace for all family child care providers. There are Hundreds of items in every residence used in the business. Furnishings and room decor contribute to the home care environment. These items are not free and have value.
Recording a household inventory will allow claiming a business deduction for furniture, appliances, and other items used in your business. All child care providers would be wise to record this inventory. Many established providers may not be benefiting from taking an inventory.
Items in your inventory can include:
Window coverings, rugs, wall decorations, lamps, furniture- Musical instruments, Books
- Kitchen utensils/dishes/bakeware
- Towels, bed linens, pillows
- Toys, play structures, strollers
- Video games, TVs, DVD players, , strollers,
- Lawnmower, tools, etc.
The deduction is based on the business Start Date, what would be the resale value of these items on Ebay or Craig’s List or at a garage sale (Fair Market Value). Items purchased after your business start date are recorded at their cost.
There are a large number of physical assets (can hold in your hand or move around the home: Example: Lamp, Washing Machine, Window Drapes. If this type of inventory was recorded for insurance purposes, it can be recorded for tax purposes as a business asset and add to your business deductions – without spending any additional money. Only items used in the normal course of the child care business will generate a tax deduction, but that includes a lot of household items.
The numbers above show that it’s well worth your time to document all of your STUFF. We all have a lot of it and you might as well turn it into a tax deduction! For your efforts, you will also create an excellent record for insurance purposes.