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.