Year-End Tax Planning for Childcare Centers: What to Do Before December 31

For most childcare centers, December is already full: holiday programs, staff schedules, closures and the January enrollment push. Tax planning is easy to postpone. But once December 31 passes, many of the most effective moves for the 2026 tax year are no longer available.

A few focused steps in November and early December can lower your tax bill, prevent surprises in January and make filing season far calmer. Here is what we recommend every center owner and director review before year-end.

1. Bring your books up to date

You cannot plan around numbers you do not have. Reconcile every bank and credit card account through November and make sure each transaction is categorized. Confirm that all income is recorded: tuition, registration fees, state childcare subsidy payments and food program (CACFP) reimbursements. Missing or misclassified income is one of the most common problems we see in childcare books.

2. Project your full-year profit

With current books, you and your accountant can estimate where 2026 will land. That projection drives every other decision on this list. If profit is higher than expected, it may make sense to pay certain expenses before December 31. If you use cash-basis accounting, expenses you pay in December generally count for this year.

3. Time equipment and furniture purchases

Classroom furniture, playground equipment, computers and vehicles may be fully deductible this year. For 2026, the Section 179 deduction allows up to $2.56 million in qualifying purchases, and 100% bonus depreciation has been restored for qualifying property acquired after January 19, 2025.

The key detail: the asset must be placed in service by December 31. That means delivered, set up and in use, not just ordered. And a purchase should still make sense for your center. A deduction reduces your tax; it does not make the item free.

4. Review how you pay yourself

If your center is an S corporation, the IRS expects owners who work in the business to receive a reasonable salary through payroll. Review your salary and distributions before the final payroll of the year, while adjustments are still simple. If you pay your own health insurance as a more-than-2% shareholder, it must be reported on your W-2.

5. Make retirement contributions

Retirement plans are one of the most effective ways to reduce taxable income while building savings for you and your staff. Deadlines differ by plan: some contributions must be made through payroll by December 31, while others, such as a SEP-IRA, can be opened and funded up to your filing deadline. Small businesses starting a new plan may also qualify for a startup tax credit. Confirm your deadlines now so you do not miss them.

6. Prepare payroll for the new overtime rules

Starting with 2025, employees can deduct the premium portion of overtime pay (the “half” in time-and-a-half) required under the Fair Labor Standards Act. For 2026, employers must report qualified overtime on each employee’s W-2 in Box 12, code TT.

Make sure your payroll system tracks FLSA overtime separately from regular hours. Holiday weeks and staff shortages often create overtime, and fixing records in January is much harder. Also remember that holiday bonuses and gift cards are taxable wages and must go through payroll.

7. Get ready for W-2s and 1099s

Forms W-2 and 1099-NEC for 2026 are due by February 1, 2027, because January 31 falls on a Sunday. For payments made in 2026, the 1099-NEC threshold rises from $600 to $2,000.

Collect a Form W-9 now from every contractor you pay, such as cleaning services, maintenance, enrichment instructors or bookkeepers. This is also a good time to confirm that teachers and aides are classified as employees. In nearly every case, they should be.

8. Review staff benefits for 2027

If you offer a dependent care FSA, employees can now set aside up to $7,500 a year before taxes, up from $5,000. For a childcare workforce, that is a meaningful benefit. Share it with your staff during open enrollment.

What to bring to your year-end meeting with your accountant

• Profit and loss statement and balance sheet through November
• Bank, credit card and loan statements
• Payroll reports, including overtime and any bonuses paid
• Receipts or invoices for equipment, furniture and vehicle purchases
• Records of subsidy payments and food program reimbursements
• A list of contractors you paid, with their W-9s
• Retirement plan and owner health insurance details
• Your 2026 estimated tax payments (the fourth-quarter payment is due January 15, 2027)

Start now, not on December 30

Year-end planning works best as a conversation, not a last-minute scramble. Owners who review their numbers in November have time to act. Those who wait until the last week of December usually find their options limited.

At Daycare Accounting Pro, we work exclusively with childcare businesses. If you would like help reviewing your numbers and building a year-end plan, schedule a consultation with our team.

This article provides general information and is not tax or legal advice. Every center’s situation is different, so please consult your tax professional before making decisions.

Sources

• IRS Rev. Proc. 2025-32 limits, summarized: Section 179 for 2026
• Form 1099 reporting threshold changes
• No tax on overtime: 2026 W-2 reporting
• Dependent care FSA limit for 2026