Sch C: Cost of Goods Sold for Daycare?

[Chowdahead]

I am working on the return for a new client who has a Home Daycare. Last year's preparer put the cost of food and snacks purchased for the daycare under Costs of Goods Sold in the back of the Sch C.

I thought this was odd. I was under the impression that foods and snacks were calculated on a per diem basis, which was $3.74 per day for breakfast and lunch (I haven't looked it up yet to verify). I thought "Cost of Goods Sold" applied mostly to retailers.

Seemed odd because she is not "selling the food" to the kids. It's included as part of her services. However, the rest of the return is pretty much by the book and this is the second return I have seen like this in 2013 so that made me question if it's actually accurate.

Any thoughts from the forum?

[jasdlm]

Daycare meals can be deducted using per diem or actual cost. Per diem is safer, IMHO, because how do you prove to the IRS that you or your family didn't eat any of the food? How do you segregate the ketchup?

I have always put these expenses on the 'other expense' line under groceries.

$1.24 for each breakfast
$2.32 for each lunch or supper
$0.69 for each snack

I believe these are the 2012 rates, and I believe you can give a kid up to 3 snacks, but someone who does more home daycare returns might want to confirm.

I can't think of a reason to put the groceries under COGS, but . . .

[Janitor Bob]

definately NOT cost of goods sold. The end result might be the same, but it really should go under a separate expense as mentioned by jasdlm above

[rfassett]

In my accounting training I was taught that the general rule of thumb is that everything directly related to generating the income is classified as costs associated with generating the income, aka, cost of goods and services sold. I would put the per deim amounts I COGS on the "other" line.

[Guest Taxed]

I do several day care returns. Never used COGS for children's food/snack expense. I use other expense worksheet and use the published per diem rates. It is a safe harbor and easier to calculate.

i do have one client who uses actual cost because she believes in "home quality food" rather than institutional type food and has some special diet need kids. She saves every grocery receipt and has her daughter add it up for me by month. One year I averaged it and I think it came to like $4 per meal.

She refuses to feed kids chicken nuggets, french fries and fish sticks as their main meal!

[Terry D EA]

I too have done several day cares and have always used the per diem rates. I have used the other expense worksheet for reporting this expense as well.