Keeping your childcare facility warm in winter, cool in summer, and well-lit year-round is essential for creating a safe and comfortable environment. Utilities like electricity, gas, and water are vital for daily operations, but their costs can become a significant part of your budget.
Knowing how to track and deduct utility expenses is an essential part of managing your program's finances. This guide explains what qualifies as a utility expense, why tracking these costs is important, and how to maintain accurate records. We’ll also cover how to deduct these expenses and introduce a tool to simplify financial management.
What qualifies as a utility expense?
For childcare providers, utility expenses include the costs of basic services needed to keep your program running. How you deduct these expenses depends on whether your program operates in a commercial space or your home.
Utilities for a commercial space
If you lease or own a building specifically for your childcare program, all utility bills for that property are considered business expenses. These include:
- Electricity
- Gas or heating oil
- Water and sewer
- Trash removal
- Internet and phone services (if used exclusively for business)
Since the property is used 100% for your business, these utilities are fully deductible.
Utilities for an in-home program
For home-based childcare providers, you can deduct a portion of your household utility bills. You cannot deduct the full amount since these utilities also cover your personal needs. The deductible portion is calculated using the time-space percentage, which accounts for:
- Space: The percentage of your home's total square footage used regularly for childcare.
- Time: The percentage of time that space is used for business activities throughout the year, including preparation and cleanup time.
This time-space percentage is applied to your total utility costs to determine the deductible business amount.
Why tracking utility expenses matters
Tracking utilities is critical for sound financial management. Beyond gathering tax documents, it provides several key benefits:
- Accurate budgeting: Consistently tracking utilities helps you plan a realistic budget, set tuition rates, and manage cash flow.
- Cost-saving opportunities: Reviewing bills regularly can uncover areas to save money, such as replacing inefficient appliances or switching service providers.
- Maximizing tax deductions: Proper records ensure you don’t miss out on valuable deductions, potentially lowering your tax burden.
- Simplified tax preparation: Organized records make filing taxes straightforward and ensure accurate reporting to your tax professional.
Tips for tracking utility expenses
Utility bills arrive monthly, making them relatively simple to track if you maintain a consistent system. Here’s how to stay organized:
1. Organize utility bills
Keep all utility statements in a central location; either physical or digital. Label folders by year and utility type (e.g., "2025 Electricity," "2025 Gas") to ensure you have a complete record when filing taxes.
2. Use a business account
For commercial spaces, pay all utility bills directly from your business bank account. Home-based providers can transfer the business portion of utility costs from a business account into a personal one. This creates a clear separation between personal and business finances.
3. Calculate business use for home-based programs
For in-home providers, utilities are considered "indirect expenses" on IRS Form 8829, "Expenses for Business Use of Your Home." Add up your yearly costs for each utility and apply the time-space percentage to determine the deductible amount.
Income and Expense Worksheet
Use this worksheet to track your finances, make smarter spending decisions, and create a monthly budget.
Are utility expenses tax deductible?
Yes, you can deduct the business portion of your utility expenses. Here’s how:
- For commercial spaces: If your program operates in a dedicated facility, 100% of utility costs are deductible and reported directly on your Schedule C (Form 1040).
- For in-home programs: The business portion of your household utilities is deductible as part of the home office deduction. Use Form 8829 to calculate your deduction based on the time-space percentage, then transfer the result to your Schedule C.
Always consult a qualified tax professional to ensure you’re accurately calculating and claiming these expenses.
Simplify expense management with brightwheel
Tracking utilities is just one part of managing your program’s finances. Brightwheel offers an all-in-one solution to streamline expense tracking, including utilities, supplies, and more. With its intuitive platform, you can categorize bills, monitor spending trends, and generate reports for budgeting and tax preparation.
Brightwheel also simplifies staff management with integrated payroll features, automating time tracking and organizing payroll-related utilities. This makes it easier to maintain accurate records, save time, and create a more reliable budget, all while focusing on running your program.
Manage utilities with confidence
Utilities are a necessary cost in creating a safe and welcoming environment for children. By tracking and understanding how to deduct these expenses, you can improve your budgeting, reduce your tax burden, and stay organized. With the right tools and diligent record-keeping, you can confidently manage utility expenses, allowing you to focus on providing exceptional care and education.
Frequently asked questions about utility expenses
Can I deduct propane tank rental fees as a utility expense?
Yes, if the propane tank is used to supply heat or power for your childcare program, the rental fees and cost of propane can be included as part of your utility expenses. Deduct the full amount if your program operates from a commercial space, or apply your time-space percentage for in-home programs.
Is the cost of an internet satellite dish deductible?
The cost associated with your program’s internet service, including satellite dish installation or rental fees, can be considered a utility expense as long as the service is used for your business. For home-based providers who use the internet for both personal and business purposes, only the business-use portion (calculated with the time-space percentage) is deductible.
How should I handle accounting or bookkeeping for utility expenses?
- Keep all utility bills (electricity, gas, water, internet, etc.) organized either digitally or in a physical file.
- For commercial spaces, record the full expense as a business deduction in your accounting software or ledger.
- For in-home providers, track the total yearly cost for each utility. At tax time, calculate the deductible amount using your time-space percentage.
- Store documentation in case of an audit and maintain clear records year-to-year for tax preparation.
Are trash removal, phone, and cable included in utility expenses?
Yes, these services are considered utility expenses if they are necessary for your childcare program. Be sure to include only the portion used for business if you operate from your home.
What’s the best way to track utility expenses for my childcare program?
Use dedicated folders, accounting software, or platforms like brightwheel to categorize expenses, set aside receipts, and track bills by type and date. Staying organized makes budgeting easier and ensures you maximize your eligible deductions.
If you have more specific questions or unique utility situations, consult a qualified tax professional familiar with childcare business deductions.
