• Cost of establishment, maintenance and use of a telephone line or internet service line. • Cost of food for children in care (not including the owner’s children if they are at the facility). • Cost of food for employees (generally limited to 50 percent of cost). • Cost of services related to access to or use of the location (for example, landscaping or lawn care in areas used by children). • Toys and equipment (Note that the category of toys and equipment can involve substantial expense since it includes items required by regulation to provide activity for the physical, intellectual, emotional, and social development of the child. Depending on the age of the child the requirement extends to things like high chairs, playpens, cribs, cots, sofas, objects and toys to allow the child to see, touch, feel, hear, and taste). • Cleaning and office supplies. For operations located in the home, full deductibility is only available for that percentage of cost associated with the “direct cost” of the “business use” of the home for delivery of child care services. For purposes of that calculation a direct expense is one that is incurred exclusively for the benefit of the business operation and an indirect expense is one that benefits both the business and the home. Indirect expenses must be allocated using the business use percentage. For example, the business use percentage limitation would apply to the deductibility of the cost of rent or mortgage payment and the cost of utilities since only part of the home is used for business use while the cost involves the entire home. The business use percentage is calculated by multiplying the “space percentage” of use (the area of the home regularly used for business divided by the total area of the home) by the “time percentage” of use (the number of hours the home was used for the child care business divided by 8,760—the number of hours in a year). The result is the allowable percentage of deduction for an indirect expense.
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