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Determining Your Income Tax Deductions -- Direct Expenses

© 2003 Brigitte A. Thompson

Taxpayers are allowed to reduce taxable income by expenses incurred in the operation of a daycare business. In all cases, taxpayers must keep the receipt, invoice, canceled check and maintain the proper documentation to prove the expense was valid in the event of an IRS audit.

Qualified direct expenses are 100% deductible from your business income. The IRS requires that these expenses be "ordinary and necessary" in order to be deducted. They define "ordinary" as an expense which is common in your industry and "necessary" means that you need to spend this money in order to operate your business.

The following is a list of suggested items that may relate to your daycare business. There are many other expenses that may arise in the operation of your business; these are only suggestions.

Accounting/bookkeeping fees
Bank service charges on a business account
Business licenses
Car/truck expenses
Diapers & wipes
Entertainment for the daycare children
Food for the daycare children
Furniture for the daycare
Gifts for business associates (Limited to $25.00 per person, per year in 2003)
Legal fees
Magazines & books necessary for your business
Maintenance & repairs
Office supplies
Payroll & related taxes
Printing charges
Rental of equipment
Telephone charges on business line

Brigitte A. Thompson is the President of Datamaster Accounting & Publishing Services, LLC and author of several recordkeeping books for daycare providers. To find out more about her books please visit " target="_blank">

All information is based on the current federal tax laws of the United States. Since these laws are subject to change, neither the author nor assume liability for modifications that occur after the creation of this work. Every effort has been made to ensure this information is as accurate and complete as possible. These articles contain general information for businesses and are offered as an overview of the law.

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