How to File Schedule C for Your Home Daycare

Schedule C (Form 1040) is the tax form every home daycare owner files to report business income and expenses. Here's a line-by-line guide in plain language — no accounting degree needed.

What Is Schedule C?

Schedule C is the IRS form for reporting profit or loss from a sole proprietorship — which is what your home daycare is. It's filed alongside your personal tax return (Form 1040). On this form, you report all your daycare income and subtract all your business expenses to determine your net profit or loss.

The basic idea:

Line 1 (Income) − Part II (Expenses) = Line 31 (Net Profit)

Your net profit is what you pay self-employment tax and income tax on. The more legitimate expenses you deduct, the lower this number — and the less tax you owe.

Part I: Income (Lines 1-7)

Line 1 — Gross Receipts

This is your total daycare income for the year. Every dollar you received from parents, CCAP payments, CACFP reimbursements, and any other daycare-related income goes here. If you track your income throughout the year, this number is ready to go at tax time.

Line 2 — Returns and Allowances

Refunds you gave back to parents. For most daycare providers, this is $0. If you refunded a deposit or gave a credit, it goes here.

Line 4 — Cost of Goods Sold

This line is for businesses that sell physical products. Home daycare providers typically leave this blank — your food and supply costs go in Part II as expenses instead.

Line 7 — Gross Income

Line 1 minus lines 2-6. For most providers, this equals your Line 1 total.

Part II: Expenses (Lines 8-27)

This is where your tax deductions go. Each line covers a different category of business expense. Here are the lines most relevant to home daycare:

Line 8 — Advertising

Facebook ads, flyers, business cards, website costs, yard signs, online directory listings. Anything you spend to attract new families.

Line 9 — Car and Truck Expenses

Your mileage deduction for daycare-related driving. At the IRS rate of $0.725/mile (2026), every grocery run, supply trip, field trip, and training drive adds up. Using the standard mileage rate is almost always better than tracking actual gas and maintenance costs.

Line 15 — Insurance

The business portion of your homeowner's/renter's insurance and any daycare liability insurance. Your accountant applies your Time-Space percentage to the shared portion.

Line 17 — Legal and Professional Services

Tax preparer fees, accountant fees, bookkeeper fees, legal consultation. The cost of getting professional help with your daycare business is itself a deduction.

Line 18 — Office Expense

Software subscriptions like DaycareProfit, Brightwheel, or accounting tools. Also printer ink, paper, and office supplies used for your business.

Line 22 — Supplies

All your daycare supplies: art materials, diapers, wipes, cleaning products, paper towels, craft supplies. This is typically one of your larger deduction lines.

Line 25 — Utilities

The business portion of your electric, gas, water, phone, and internet bills. Your accountant uses your Time-Space percentage to determine the deductible amount.

Line 27 — Other Expenses

Everything else: food/meals for the children, toys and equipment, training and education, licensing fees, bank fees, lawn care, repairs. You list each category on a separate line in Part V.

Form 8829: Business Use of Your Home

In addition to Schedule C, most home daycare providers also file Form 8829, which is where you calculate the deduction for business use of your home. This is where your Time-Space percentage gets applied to your rent/mortgage interest, property taxes, utilities, insurance, and repairs.

Key difference for daycare providers:

Unlike most home-based businesses that must use a room exclusively for business, home daycare providers get a special exception. Under IRS rules, you can deduct the business use of areas used regularly (but not exclusively) for daycare — as long as you're licensed or approved for daycare use. This is a significant advantage that only applies to daycare providers.

What Your Accountant Needs From You

Your accountant fills out Schedule C and Form 8829 for you. Your job is to give them organized records. Here's what they need:

1.Total income for the year, broken out by category (parent payments, CCAP, CACFP, etc.)

2.Total expenses by category (food, supplies, rent, utilities, etc.)

3.Your home's total square footage and the square footage used for daycare

4.Hours per week your home is used for daycare and weeks per year you operate

5.Total business miles driven during the year

6.Receipt photos for expenses $75 and over

If you've been tracking everything throughout the year, pulling this together takes minutes — not hours, not entire weekends sorting through receipts and bank statements. That's the whole point of good bookkeeping.

Self-Employment Tax: What Daycare Owners Need to Know

As a home daycare owner, you're self-employed — which means you pay self-employment tax (15.3%) in addition to income tax. This covers Social Security and Medicare. The tax is calculated on your net profit from Schedule C — which is why maximizing your deductions is so important. Every dollar in deductions reduces both your income tax and your self-employment tax.

Schedule SE (Form 1040) is where self-employment tax gets calculated. Your accountant handles this, but understanding it helps you see why tracking every expense matters.

Frequently Asked Questions

Do I need to file Schedule C if I only have a few daycare kids?

Yes. If you receive payment for providing daycare in your home, you're operating a business and need to report the income on Schedule C — regardless of how many children you care for.

Can I file Schedule C myself or do I need an accountant?

You can file it yourself using tax software, but most home daycare providers benefit from having an accountant — especially one familiar with home daycare deductions. The accountant's fee is itself a deductible business expense.

What if my expenses are more than my income?

If your business expenses exceed your income, you show a net loss on Schedule C. This loss can offset other income on your tax return (like a spouse's W-2 income), potentially resulting in a refund. This is common in the first year of operation when you have startup costs.

When is Schedule C due?

Schedule C is filed with your personal tax return, due April 15 (or October 15 with an extension). However, since you're self-employed, you may also need to make quarterly estimated tax payments throughout the year to avoid penalties.

Do I need a business license or EIN to file Schedule C?

You can file Schedule C using your Social Security number — an EIN is not required for sole proprietors unless you have employees. However, many providers get an EIN anyway to keep their SSN private when giving tax info to parents.

Make tax time painless

DaycareProfit organizes your income and expenses into a tax-ready report that maps directly to Schedule C. Download, email to your accountant, done.