Daycares & Preschools, CPA & Tax Services

Why Daycare and Preschool Owners in Dallas Need a Specialized CPA

Running a daycare or preschool in the Dallas-Fort Worth area means juggling CACFP reimbursements, complex payroll driven by state-mandated staff ratios, parent prepayments that create tax liabilities most owners miss, and (for home-based providers) time-space percentage calculations that the IRS scrutinizes closely. A general accountant who handles these the same way they handle a retail store will cost you thousands in missed deductions or, worse, trigger an audit.

At AG Freideman, we work with daycare centers, home-based childcare providers, and preschool owners across Dallas, Plano, Frisco, Allen, McKinney, and Richardson. Al Freideman is a licensed CPA with over 30 years of experience, and he handles every childcare client personally. No hand-offs to junior staff, no guessing on CACFP rules, no generic tax prep. We understand how Texas childcare businesses actually operate, and we prepare your taxes, bookkeeping, and payroll accordingly.

If you want a CPA who knows the difference between Tier I and Tier II CACFP reimbursement rates and how they affect your taxable income, call us at (972) 893-3481 or book your free consultation.

How Does CACFP Income and Expense Matching Work for Childcare Providers?

Child and Adult Care Food Program (CACFP) reimbursements are taxable income that must be reported on your return, but the food and supply expenses you incur to earn those reimbursements are deductible. The key is matching: every dollar of CACFP income should be paired against the actual food costs, kitchen supplies, and related expenses you spent that same tax year. When this matching is done correctly, many providers find that their food expenses actually exceed their CACFP reimbursements, creating a net deduction rather than net income.

For 2026, CACFP reimbursement rates are set by the USDA and vary between Tier I (providers in low-income areas or with low household income) and Tier II. The difference is significant. In 2025, the Tier I lunch/supper rate was $2.9775 per meal compared to Tier II at $1.7975. If you are a Tier I provider, you are receiving higher reimbursements and need even more careful expense documentation to offset that income. We track your food purchases, paper goods, cleaning supplies for the kitchen, and even the portion of your grocery runs attributable to your daycare against every CACFP payment you receive, so nothing falls through the cracks.

Center-based daycares in Dallas typically handle CACFP through their sponsoring organization, which adds a layer of reporting. We reconcile your sponsor statements against your bank deposits monthly through our bookkeeping services so your year-end return is accurate from day one.

What Is the Time-Space Percentage for Home Daycare Providers?

If you run a home-based daycare in Dallas or the surrounding suburbs, the time-space percentage is the single most important number on your tax return. It determines what portion of your mortgage or rent, utilities, insurance, repairs, and depreciation you can deduct as business expenses. The IRS calculates it by multiplying the percentage of your home used for childcare (space) by the percentage of hours in the year you use that space for business (time).

Here is how it works in practice. If you use 40% of your home’s square footage for daycare and you operate 50 hours a week for 50 weeks a year (2,500 hours out of 8,760 total hours in a year), your time percentage is roughly 28.5%. Multiply 40% by 28.5%, and your time-space percentage is about 11.4%. That percentage applies to your mortgage interest, property taxes, homeowner’s insurance, utilities, and home repairs. On a Dallas-area home where those costs easily total $30,000 to $40,000 per year, an accurate time-space calculation can mean $3,400 to $4,500 in deductions.

The mistake we see most often is home providers using a rough estimate instead of tracking actual hours. The IRS allows you to include time spent cleaning, meal prepping, and setting up activities (not just the hours children are present) as business-use hours. We help our home daycare clients build a simple tracking system so their time-space percentage reflects every legitimate hour, which almost always increases their deduction compared to a generic estimate.

How Do Texas Staff-to-Child Ratios Affect Daycare Payroll?

Payroll is typically the largest single expense for a daycare center, and Texas Health and Human Services (HHSC) minimum staffing requirements mean you cannot simply cut staff to save money. For children under 12 months, Texas requires a 1:4 staff-to-child ratio. For ages 12 to 17 months, it is 1:5. For two-year-olds, 1:9. For three-year-olds, 1:13. These ratios directly dictate your labor costs, and any CPA preparing your taxes needs to understand that.

For a Dallas-area center with 60 enrolled children across multiple age groups, you may need 8 to 12 staff members at any given time just to meet state minimums, before you add floaters, administrative staff, or substitute coverage. At current DFW wages for childcare workers ($13 to $17 per hour), payroll alone can run $25,000 to $50,000 or more per month. That makes accurate payroll processing, proper payroll tax deposits, and correct W-2 preparation critical.

We provide monthly payroll services for daycare centers at $300 to $600 per month, which includes bank reconciliation, payroll tax deposits, and W-2 preparation. Because Al handles your bookkeeping and your tax return, your payroll data flows directly into your business return with no gaps or reconciliation headaches at year-end.

Are Parent Prepayments Taxable Income for Daycares?

Yes, but the timing matters. Many Dallas daycares collect tuition one to four weeks in advance, and some collect registration fees or deposits months before a child starts. Under accrual-basis accounting, you recognize that income when the service is provided, not when the cash hits your bank account. Under cash-basis accounting (which most smaller daycares use), you recognize it when you receive the payment. Getting this wrong creates a mismatch that can either overstate your income (paying tax on money you have not yet earned) or understate it (which invites IRS scrutiny).

For daycares operating on a cash basis, every parent payment you receive in 2026, including December prepayments for January 2027, is 2026 taxable income. If you are on the accrual basis, December prepayments for January services are a liability on your 2026 balance sheet, not income. We help you choose the right accounting method for your situation and ensure parent prepayments are recorded correctly every month. This is one of the areas where our monthly bookkeeping pays for itself, because catching a $15,000 misclassification of prepaid tuition at year-end is expensive to fix and easy to prevent.

Daycare and Preschool Tax Mistakes We Fix

After 30 years of working with small business owners, Al has seen the same childcare-specific tax mistakes come through our door repeatedly. Here are the ones that cost daycare owners the most money:

• Failing to deduct CACFP-related expenses against CACFP income. Many providers (or their previous preparers) report the reimbursements as income but forget to deduct the food, supplies, and kitchen costs that generated them. This overstates taxable income by thousands of dollars.
• Using a flat estimate for time-space percentage instead of tracking actual hours. Home providers who estimate “about 30%” often qualify for 35% to 45% when they track prep time, cleaning time, and planning hours. On a $35,000 annual housing cost, that difference is $1,750 to $5,250 in lost deductions.
• Misclassifying substitute teachers or floaters as independent contractors. The IRS and the Texas Workforce Commission apply strict rules. If you set their schedule and they work on your premises, they are almost certainly employees. Misclassification triggers back payroll taxes plus penalties.
• Missing the Texas Franchise Tax filing deadline. Every Texas LLC or corporation, including daycare LLCs, must file a Franchise Tax Report and Public Information Report by May 15 each year with the Texas Comptroller. The no-tax-due threshold for 2026 is $2.47 million in total revenue, so most daycares owe $0, but you still must file or face penalties. We handle franchise tax filings for $250 to $500.
• Not tracking depreciation on playground equipment, furniture, and classroom materials. Items like cribs, tables, outdoor play structures, and educational materials are depreciable assets. Under Section 179, many of these can be fully expensed in the year of purchase rather than depreciated over multiple years, but only if they are properly documented.