Home daycare providers: books, the home deduction and taxes done for you
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Find out what we’d handle and what it costs
Thirty minutes by phone; you leave with one written price.
Each month we keep the books, match every parent, subsidy and food-program payment, keep the room hours and food records, and at year end we prepare the return. Bookkeeping starts at $375 a month, quoted as a flat fee in writing before we start. Based in Santa Clarita, we work with home daycare providers in any state.
Typical situations
Do you work with home daycare providers like me?
Yes, we take on home daycare providers who are licensed or exempt from licensing, paid by parents or a subsidy agency, on the food program or not, working alone or with an assistant, a spouse, a teenager or a substitute. A family that pays a nanny or caregiver to work in its own home has a different set of rules — that reader is covered on our page for families who pay a nanny in their own home.
A provider whose daycare shares the living room, playroom and kitchen with the family
On file are the license, the posted opening hours and days, and the attendance sheets — and no measurement of any room. Last year’s Form 8829, the IRS form for business use of the home, used a share of the house that nothing on file supports. A room that’s available all business day and used regularly for the daycare counts for the whole business day — the IRS doesn’t ask for a log of the exact hours. We take the square footage of the home and each daycare room from you, keep any room used only for the daycare apart from the shared ones, take the daycare hours from the posted schedule and the attendance sheets, prorated for a year the daycare opened or closed partway through, and redo it each year. The return alone, from $650: how we prepare the return.
A provider paid by Zelle, Venmo, checks and cash, with a subsidy agency paying for two children
Payments arrive as app histories, a notebook of cash, the agency’s payment statements and the food-program sponsor’s deposits, all landing in the family’s checking account. With the daycare’s money and the household’s in one account, the year’s income gets pieced together at tax time from memory and the bank. Parents paying for their own children send no 1099s — the IRS’s 1099 instructions say “Personal payments are not reportable” — an agency paying for a child may or may not send one, and the income is reported in full either way. We match every deposit to a parent, the subsidy agency or the food-program sponsor, or note what else it is, book the agency’s payments from its statements, and show parent, subsidy and food-program income on separate lines in each month’s P&L (profit and loss statement). Monthly bookkeeping from $375 a month: what the monthly bookkeeping covers.
A provider on the food program whose groceries mix the daycare’s and the family’s
Register receipts sit in a box, the sponsor’s monthly reimbursement statements come by email, and a Form 1099-MISC arrives after year end. The daycare’s share of the groceries can’t be pulled out of the family’s, and last year’s return reported the whole 1099-MISC as income with no food cost set against it. We set up the year’s food records in the first month: the daycare’s groceries on their own line with their receipts, or a daily log of each child’s meals and snacks served, kept with the attendance sheets, if the standard rates will be used, with each sponsor statement tied to the month it covers.
A provider who pays an assistant every Friday through a payment app
Every Friday the assistant gets paid through the app, the provider sets the weekly schedule, and a 1099-NEC — the year-end form for reporting nonemployee compensation — goes to the assistant at year end. If the assistant is in fact an employee, the 1099 leaves the withholding, the payroll tax returns and the W-2 undone. Under the IRS’s test, a worker is an employee if the provider has the right to control what is done and how it’s done, whatever the arrangement is called and whether the job is full or part time. We go through the IRS’s control questions with the provider before the next payday and, for an assistant the provider puts on payroll, set up the pay runs, direct deposit and pay stubs, the federal deposits, the 941 and 940 (the federal quarterly and annual payroll tax returns) and the year-end W-2. Payroll from $95 a month: what our payroll service includes.
A provider whose spouse covers drop-off and lunch and whose teenager helps after school
Both are paid now and then from the household account, there are no pay records, and the daycare is a sole proprietorship. Nobody has checked which payroll taxes the family rules leave out, so payroll set up the usual way would figure the wrong ones. When the daycare is a sole proprietorship, a child under 18 working for a parent owes no Social Security or Medicare tax on the wages and a child under 21 no federal unemployment tax, a spouse’s wages carry Social Security and Medicare but not federal unemployment tax, and those breaks end if the daycare is a corporation. We check each family member’s age, whether the daycare is a sole proprietorship, an LLC or a corporation, and the state’s rules before the first paycheck, then set up payroll.
A provider two years behind on the books
The parents’ payments are spread across app histories and a notebook, the sponsor’s statements sit in email, the receipts are in a box, and neither year’s return has been filed. Until the books are rebuilt, neither return can be prepared from real numbers. We rebuild the missing months first, take the oldest year before the newer one, and then prepare the returns. Cleanup from $750: how a cleanup project runs.
Your home
How much of my home can I deduct as a home daycare provider?
A home daycare provider can deduct the part of the home used regularly for the daycare even though the family uses the same rooms after hours, as long as the provider is in the business of providing day care and has applied for a license and not been rejected, holds one that hasn’t been revoked, or is exempt from licensing under state law — a room used only now and then doesn’t count. For a room the family also uses, Form 8829 takes the room’s share of the home’s space, then cuts it down by the hours the room is used for the daycare compared with all the hours it’s available; a room used only for the daycare counts in full by its space. Instead of actual costs, the simplified method allows $5 for each square foot used regularly for the daycare, on up to 300 square feet — at most $1,500 — with the $5 cut by the daycare hours over the hours available when the space isn’t used only for the daycare, and years on it add no home depreciation.
We check the license condition for each year we file, take the square footage of the home and each daycare room from you, and take the hours from the posted schedule and the attendance sheets. We split the home’s own costs — rent for a renter; for an owner, mortgage interest, real estate taxes, insurance, utilities, repairs and depreciation (writing off the home’s business part over years) — never what the home would rent for, which the IRS doesn’t allow. Before filing we run the simplified method and the actual costs both ways, including the depreciation the actual-cost method adds, which comes back into the gain when the home is sold.
Food
Can a home daycare provider deduct the children’s food, and is food program money taxable?
Yes — the daycare children’s food is deducted on Schedule C, the business page of your personal return, and food program (CACFP) reimbursements are taxable only to the extent they’re more than what was spent on the eligible children’s food. Food the provider and the family eat never counts, so a provider who deducts actual costs keeps the family’s groceries apart with their receipts. Instead of food receipts, a family daycare provider can use the IRS’s standard meal and snack rates for each meal and snack actually served to an eligible child — a child in your care who doesn’t live in your home — with a log of each child’s name, the days and hours attended and the meals and snacks served. The CACFP — the USDA’s Child and Adult Care Food Program, paid through a sponsor — is netted against the food for the eligible children, a shortfall is an expense, and a Form 1099-MISC from the sponsor doesn’t change how it’s reported.
We pick the food method for the year with you, net the sponsor’s reimbursements against the eligible children’s food only, and tie the year to the sponsor’s statements and any 1099-MISC.
Catch-up work
What does a catch-up look like when a home daycare provider’s books are behind?
A catch-up rebuilds the missing months from your bank, the parents’ payment records, the subsidy agency’s statements and the food program’s reimbursement statements, then takes the unfiled returns oldest first — a cleanup from $750.
What we ask for
We ask for the parents’ payment records, the subsidy agency’s statements, the food program’s reimbursement statements, and the bank and card statements for every account daycare money ran through.
How the cleanup runs
We rebuild the missing months from the bank statements, each deposit matched to a parent, the subsidy agency or the food-program sponsor. We check the room square footage and the daycare hours against the schedule and the license for each year, and rebuild food from receipts with the family’s food separated, or from attendance and meal records if the standard rates are used. Unfiled years go oldest first.
What you get
The rebuilt year, the return prepared from it, and quarterly estimates — the tax payments made four times a year — figured from reconciled numbers.
Cleanup is billed half to start and the balance on delivery. Here’s how a cleanup project is scoped and priced.
The monthly close
What do you check every month for a home daycare provider?
Each month we check that every dollar the daycare took in is matched to its source, and that the records behind the home deduction and the food deduction are current.
- Parent payments by Zelle, Venmo, check and cash, matched to deposits
- The subsidy agency’s payment statements booked against the bank
- The food program sponsor’s reimbursement statements tied to the months they cover
- Grocery receipts with the family’s food kept apart, or the meal and snack log brought current
- Attendance sheets checked against the posted schedule
- Supply and toy receipts coded
- The assistant’s payroll and federal deposits, if anyone is on payroll
- Utility, insurance and rent or mortgage statements filed for the home deduction
Each month you get the P&L, the balance sheet and a short note on what needs attention. Here’s what the monthly bookkeeping includes.
California
What’s different for a home daycare provider in California?
In California the home deduction works the same on the state return as on the federal one — the FTB, the state tax board, lists it as “Same as federal” — and eight things change for a home daycare provider: the license behind it, the subsidy programs, the test for an assistant, registering a first employee, family members on payroll, the state’s own contractor report, the City of Los Angeles, and letters from the FTB.
- Licensing. California’s Department of Social Services licenses family child care homes in the provider’s own home, and caring for your own or a relative’s children plus children from only one other family is license-exempt. We ask which license you hold, or that you’re exempt, because the home deduction depends on it; we don’t advise on licensing.
- Subsidy programs. California’s child care subsidy programs include CalWORKs child care and the Alternative Payment Program, and a program may ask for your W-9 — the form that gives a payer your taxpayer ID — before paying. We book each program’s payments from its statements.
- An assistant. In California, an assistant is presumed an employee unless all three conditions of the ABC test — California’s three-part test for whether a worker is a contractor — are met, whatever the 1099 says, and part-time help isn’t excluded. We go through it with you before the first paycheck.
- A first employee. Once the daycare pays more than $100 in wages in a quarter, it registers with the EDD, the state’s payroll agency, within 15 days, and every California employer carries workers’ compensation, even with one employee. We do the EDD registration; arranging the workers’ comp coverage is between you and an insurer, and we don’t give insurance advice.
- Family on payroll. The EDD’s family rule leaves a spouse, and a child under 18 working for a parent, out of state unemployment insurance, the training tax and state disability insurance, but not out of state income tax withholding, and the rule doesn’t apply when the employer is a corporation or an LLC. We check it before registering.
- Substitutes paid as contractors. California’s own report, the DE 542, goes to the EDD within 20 days of the first payment or the contract, whichever comes first; we check whether a substitute triggers it.
- The City of Los Angeles. For a home inside the City limits, the City’s Office of Finance lists family day care homes among business types that don’t need a Business Tax Registration Certificate, and its pages describe that exemption differently for large homes. We check yours by address and license, and if the City sends its AB63 notice (its letter asking a business to register), the City’s own alternative form is where an exempt provider answers it.
- Letters from the FTB. If the FTB sends a letter about a return, we handle it, as we handle IRS letters.
Pricing
How much do a home daycare provider’s books, payroll and return cost in 2026?
In 2026, bookkeeping for a home daycare provider starts at $375 a month, payroll at $95 a month for an assistant on payroll, the return alone at $650 for a home daycare on Schedule C or $850 for a business return with the owner’s personal return included, and a cleanup at $750. W-2 and 1099 filing on their own, without monthly payroll, starts at $95, and an assistant’s W-2 is included when we run payroll. Each is a flat fee quoted in writing before we start.
The Form 8829 time-space computation and the split between rooms used only for the daycare and shared rooms, the standard-meal-rate computation or meal log set-up, matching the food program’s reimbursements, the home’s depreciation schedule — or rebuilding it for past years — and W-10s for parents (the form parents use to ask for your taxpayer ID) sit inside the quote; there’s no separate charge for them. What moves a quote: which license you hold, or that you’re exempt, and your state; the hours and days the home is used for care and which rooms; how parents pay and whether a subsidy agency pays for any children; whether you’re on the food program and keep a food log; an assistant on payroll, a spouse or child helping, or substitutes paid as contractors; whether the home is owned or rented; whether books are kept and in what; the last return filed and any years behind; and whether there’s an LLC or entity return.
Books
from $375/mo
- Every parent, subsidy and food-program payment matched to the bank
- Parent, subsidy and food-program income on separate lines
- Food records kept the way the year’s method needs
- Monthly P&L, balance sheet and a short note
Payroll
from $95/mo
- An assistant, or a spouse or child, on payroll
- Pay runs, direct deposit and pay stubs; new-hire reporting
- The federal deposits and the 941 and 940 (the federal quarterly and annual payroll tax returns); the DE 9 and DE 9C (California’s quarterly payroll reports)
- The year-end W-2
The return alone
from $650
- Schedule C with Form 8829 or the simplified method
- The food deduction with food-program reimbursements netted
- Quarterly estimates from your real numbers
- From $850 for a business return with the owner’s personal return included
The quote is the price.
How it works
What happens after you book?
One free 30-minute call, an engagement letter sent during it, then a portal invite and a short checklist.
The 30-minute call
We ask about your license and rooms, the hours and days the home is used for care, how parents pay, whether you’re on the food program, and who helps. The call ends with one flat price for the work we’d take on, quoted in writing before we start.
The engagement letter
It goes out during the call; sign it when you’re ready. Signing books a short onboarding call, and the secure-portal invite comes from that call.
Access and documents
The portal invite, read-only bank feeds or the QuickBooks file, the most recent returns filed with Schedule C and Form 8829, the license, the square footage of the home and of each daycare room, the daily schedule and attendance records, and the food program’s statements.
Behind first
If the books are behind, the cleanup comes first, then the first monthly close.
You see the return before it’s filed
Half the return fee starts the work, and the balance is due before e-file.
Communication
You’ll know where the books and the return stand.
The person who answers the phone is on the same team that keeps your books and prepares your return.
The same-day rule
Call or email during business hours and you’ll hear back the same day — all twelve months.
Home daycare providers are welcome
Licensed or exempt, on the food program or not, with an assistant or a teenager helping — the free call ends with a straight answer on whether we’re the right fit.
Admitted to practice before the IRS
Our team of IRS representation specialists is admitted to practice before the IRS. If an IRS letter shows up — about a 1099 or the home deduction — forward it: how we handle IRS letters.
The N&T Tax & Advisory Group team
For a home daycare provider, we keep the books, run the payroll and prepare the return from the same set of numbers.
Bookkeeping · Tax preparation · Tax planning · IRS representation · Direct line: (661) 554-4495
Reviews
Rated 5.0 on Google
★★★★★ Twelve reviews, every one five stars, every one verifiable. Read all of them on Google →
"Alex helped me resolve a complicated tax situation that had been causing me a lot of stress. He was extremely knowledgeable, responsive, and efficient throughout the entire process."
Kevin B. — via Google
"Working with Alex was straightforward. I hadn't looked at my books all year, but he made my life easy and handled the whole profit and loss at the end of the year so I could get my taxes done."
Levon B. — via Google
"I came to this company with previous tax years and bookkeeping that were done incorrectly. They're very knowledgeable about what they do and help me get everything in order at a very reasonable price."
Sayra A. — via Google
Where we work
Do you work with home daycare providers outside California?
Yes — based in Santa Clarita, we work with home daycare providers remotely in any state. Documents come through the secure portal, and we walk through the monthly report with you by phone or screen share. If your daycare is in another state, we work to that state’s payroll and filing rules and price it into your quote.
What we don’t do
We don’t advise on licensing — getting or keeping a license, capacity, ratios, staffing or inspections — or on what to charge parents, and we don’t sign you up for the food program or a subsidy program. Insurance of any kind, labor law such as minimum wage, overtime and breaks, background checks, filing City of Los Angeles forms, legal advice, and reviewed, compiled or audited statements are outside our work.
Worth reading
What can you read before you call?
We keep four articles on the blog for readers whose situations overlap yours; each names the reader it was written for.
Self-Employment Tax Explained: What Schedule SE Charges 1099 Workers in 2026
Written for 1099 gig workers: how Schedule SE works. Quarterly taxesQuarterly Taxes for the First Time: What to Pay, When, and How in 2026
Written for first-year 1099 workers. RecordsWhat Receipts to Keep for Taxes in 2026: The Self-Employed Owner’s Keep-or-Toss Guide
Written for self-employed owners. First employeeWhat a W-2 Employee Really Costs in Taxes vs 1099 (2026)
Written for small trade employers weighing a first employee: what an employee costs beyond wages.FAQ
What should a home daycare provider ask before booking?
Do I owe self-employment tax on my home daycare income?
Yes — a home daycare run as a sole proprietorship reports its profit on Schedule C, the business page of your personal return, and once net earnings for the year reach $400 that profit carries self-employment tax, figured on Schedule SE, the self-employment tax form. The tax covers Social Security up to the year’s wage base and Medicare on all of it, half of it is deducted for income tax, and the $400 is net — after expenses — not the tuition taken in. Quarterly estimates are generally required once you expect to owe $1,000 or more for the year; we figure them from the books rather than a rule of thumb, and the last 2026 payment is due January 15, 2027.
Parents asked me to fill out a Form W-10. Do I have to give them my Social Security number?
Yes — the law requires a care provider to give parents a correct taxpayer ID, and for a sole proprietor the W-10 instructions say that ID is the Social Security number. Parents who claim the child and dependent care credit have to list your name, address and taxpayer ID on Form 2441, the form parents use to claim the child care credit. The parents keep the W-10 rather than filing it, and a letterhead or invoice showing the same name, address and taxpayer ID can serve instead. We fill in the W-10s parents send.
Do I have to send a 1099 to a substitute who covers for me?
If the substitute isn’t your employee and isn’t a corporation and you paid $2,000 or more for the substitute’s work during 2026, a 1099-NEC goes to the substitute and the IRS by February 1, 2027 (January 31 is a Sunday). Whether the substitute is an employee turns on who controls what is done and how it is done. Collect a signed W-9 before the first payment; a substitute who won’t give a taxpayer ID means holding back part of each payment for the IRS. We never decide who is an employee — we run payroll for anyone you put on it, and we tell you when a case needs an employment attorney.
What happens to my home daycare deduction when I sell my house?
The daycare rooms inside the home don’t need their own sale calculation, but the part of the gain equal to the depreciation allowed or allowable — the depreciation you took or could have taken — on the home’s business part after May 6, 1997 can’t be excluded, whether or not it was claimed. Years on the simplified method add no home depreciation. We set up the home’s depreciation schedule from the purchase records, leave out the land, carry it forward every year, and flag any year when depreciation was allowable but not taken.
My daycare books are a year or more behind. Can you catch them up?
Yes — a cleanup project from $750 rebuilds the books from the bank and card statements, the parents’ Zelle, Venmo, check and cash records, the subsidy agency’s statements and the food program sponsor’s statements, and the returns are then prepared from the rebuilt books, oldest year first. How long it takes depends on how many months are missing and what records exist.
Should my home daycare be an LLC or an S-corp?
An S-corp is a tax election an LLC can also make, so the choice is about how the business is taxed on your own figures, and a California LLC owes the $800 annual tax. We model both on your numbers before you form or elect anything — the entity also changes how a spouse or child on the daycare’s payroll is taxed, which we check. Our entity-selection page shows how we compare the options.
Ready to hand off the books, the payroll and the return?
One free 30-minute call. You’ll leave knowing what we’d handle and what it costs — whether or not you hire us.
Rather talk now? Call (661) 554-4495 — reach us during business hours and you’ll hear back the same day.
Our team of IRS representation specialists is admitted to practice before the IRS. This page is general information, not tax advice for your specific situation.