The Ultimate Guide to Tax Season at Your Child Care Center

Christian Mason
February 9, 2024

Tax Season can be a stressful time of year for any business and child care centers are no different! With varying rules and regulations between states and countries, navigating the tax season landscape can seem daunting to new and experienced child care center owners, but there are steps you can take to make the whole experience easier on yourself. With a little bit of effort, preparation and strong record-keeping through your billing system, you can ensure that this tax season goes smoother than ever.

Understanding Your Center’s Business Structure

Before you start prepping your paperwork, it’s important to be sure that you know what kind of business structure you’ll be filing as. Some of the most common types are limited liability companies (LLC), sole proprietorships, partnerships and corporations. If you’re the owner or manager of an existing child care business you likely already know your center’s business structure by heart, but if you’re looking to start your own, it’s worth evaluating the pros and cons of each type. Every center is different so if you’re still in the planning stages of your business, consult a tax specialist to help you make the right decision.

Knowing Your Eligibility For Tax Deductions

Who doesn’t like saving some money during tax season? Well depending on some of the financial decisions you made throughout your fiscal year, you may be eligible for some tax deductions that will reduce your center’s tax liability. Check out some of the most common tax deductions that child care centers are able to claim:

Operating Expenses

These are deductible expenses that are related to running your child care center like rent, salaries, supplies, food and beverages, licensing fees, insurance, utilities, and some other miscellaneous expenses.

Supplies and Educational Materials

This category refers to costs associated with purchasing things like educational materials, equipment and toys for your center. Think books, playground equipment, educational software if your center utilizes electronics in learning and various elements used in activities here.

Depreciation

Unfortunately, many of the supplies you’ve purchased for your child care center will wear down and depreciate over time. That’s where depreciation comes in. Depending on what equipment you own, you may be able to claim a depreciation deduction.

Employee Wages and Benefits

Salaries, health insurance, retirement plan contributions and other monetary benefits can all be classified as deductions when you’re filing taxes for your child care center!

Marketing and Advertising

Did you spend money on advertising this past year? That can be a deduction too. Take note of the costs you spent on flyers, website development and online advertising to make the most of this deduction opportunity.

Claiming Child Care Tax Credits

Deductions aren’t the only way to reduce your tax liability once it’s time to file. There are two main types of tax credits available to child care providers that you may also be eligible for, Child and a Child and Dependent Care credit and a Work Opportunity Tax Credit (WOTC).

Child and Dependent Care Credit

This credit provides a percentage of qualifying child care expenses for children under the age of 13. To claim it you’ll need to make sure you have your employer identification number ready!

Work Opportunity Tax Credit (WOTC)

You may be eligible to claim this credit if your child care center employs individuals from certain groups like veterans or those receiving Temporary Assistance for Needy Families.

Preparing to File: Best Practices

Now that you know some of the ways to save money on your center’s taxes, let’s talk about a few ways you can make sure that filing goes as smoothly as possible! For starters, you’ll need all of your financial statements. Financial statements include anything that documents the flow of money to or from your center like income and the business expenses we mentioned earlier.

Get Organized

Staying organized can play a huge role in ensuring you have these documents handy and that your taxes are filed correctly, but keeping these documents in order can often be easier said than done. To ensure you don’t miss out on any details, create a folder to house all of your business expense receipts. A physical folder can be nice but can quickly become a source of clutter and even lead to the misplacement of some documents. Utilizing a cloud-based folder for your receipts like Google Drive can help ensure you have access to this information at any time from almost any location.

If you’re tracking your finances manually, a similar method can help save you from headaches but you’ll need to make sure everything is well-labeled and easily accessible. Utilizing a child care center management software like Jackrabbit Care can be a huge help during this process by holding all of your end-of-year tax statements in one centralized and convenient location.

Plan Ahead

One of the biggest mistakes you can make when it comes to taxes as a business owner is waiting to start until the last minute. Unexpected issues, missing documents and more could happen during your filing process which could cause you to miss your filing deadline. But just when is your last chance to submit your taxes? Well, that varies depending on what kind of business your child care center is registered as, so it’s important to familiarize yourself with the date applicable to your center as quickly as possible. Here are the tax filing deadlines for the business types we mentioned before:

LLCs and Corporations – April 15th, 2024
Sole Proprietorships – April 18th, 2024
Partnerships – March 15th, 2024

File Those Taxes!

All that’s left to do now is choose your favorite filing service, input your information and submit your taxes! By using the tips and reminders in this guide you’ll have a much smoother tax season than without. If you find yourself with specific questions not covered here, consult the IRS website for in-depth answers or consult your local tax professional.

Want to learn more about how Jackrabbit Care can help you track and maintain your finances? Book a free demo with us today!