Simplified Home Office Deduction for Daycare Providers

If you operate a daycare center out of your home, the simplified method of determining your home office deduction is less burdensome and requires less paperwork and record-keeping than the regular method. You can elect from year to year which method you want to use, depending on what gets you the best deduction.

See Publication 587, Business Use of the Home, to review qualifications and make sure you are eligible.

Here are some of the highlights of the simplified method:

  • Standard deduction of $5 per square foot (up to 300 square feet)
  • Can still claim mortgage interest and real estate taxes on Schedule A
  • No home depreciation or later recapture of depreciation for years when simplified methods are claimed

Here is what you need to know to figure your deduction:

  • Square footage of allowable area
  • Income from business use of your home
  • Amount of business expenses not related to the use of your home

Use the Simplified Method Worksheet in the instructions for Schedule C for your daycare business. If you don’t use the work area of your home exclusively for daycare, you must reduce the prescribed rate, which is a maximum of $5/square foot, before figuring your deduction.


About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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