Michigan State University Extension
Home-Based Business - 09159421
10/01/98
Since January 2, 1994, day care providers who operate from their home have had an easier way to file their federal income tax returns because of a simplified record keeping rule.
If a room is available throughout the business day and is regularly used for day care, the square footage of that room will be considered as used for day care for the entire business day. For example, a bedroom may be available for child care children's morning and afternoon naps. This rule has eliminates the need for a day care provider to keep specific hours of business use for that room.
According to the IRS, day care providers should figure this deduction on form 8829, Expenses for Business Use of Your Home. This form allows someone who operates a business in their home to list all the expenses from that business on one form, making it easier to determine the business owner's allowable deductions. This form along with Schedule C, Profit or Loss from Business, is attached to the day care provider's income tax return.
In computing the deduction for a taxable year, a provider should multiply the total costs incurred during the year with respect to the home by two fractions. The first fraction is the total square footage in the provider's home that is available for day care use throughout the business day and that is regularly used for business, divided by the total square footage of the home.
The second fraction is the total hours in the year that the day care business operated (including substantiated preparation and clean-up time), divided by the total number of hours in a year (8,760).
The occasional non-use of such a room for a business day will not disqualify the room from being considered regularly used. However, the occasional use of a room that is ordinarily not available as part of the routine provision of day care, such as a bedroom ordinarily restricted from day care use but used on occasion for naps, will NOT be considered as used for day care throughout each business day.
Revenue Ruling 92-3 appears in Internal Revenue Bulletin 1992-3, dated January 21, 1992.
Source: The Children's Foundation.