Daycare Center Tax Guide: Deductions and Credits

Daycare Tax Considerations

Daycare centers average $350K in revenue with 10% margins. The biggest expenses — staff wages, rent, and food — are all deductible.

Special Deductions

Food program: Meals served through CACFP are reimbursed and the costs are deductible.
Home daycare: A dedicated area used exclusively for daycare qualifies for the home office deduction based on time-space calculation.
Supplies and curriculum: Educational materials, toys, and cleaning supplies are fully deductible.

Employee vs Contractor

Daycare workers are almost always employees (not contractors) under IRS rules. Budget for payroll taxes at 7.65% (employer FICA) plus state unemployment.

See daycare taxes by state.