I Gave a Family a Discount — Can I Deduct It?
Family child care providers often choose to support families who are facing financial challenges. You might offer a discount, waive a co-pay, or forgive an unpaid balance to make care more affordable. These gestures make a difference for families, but they do not qualify as deductible business expenses.
Common Examples
Here are a few situations where this question comes up:
You give a parent a $100 discount because they lost their job.
You waive a $300 co-pay for a low-income family.
You charge a reduced rate of $50 for the first week to encourage enrollment.
A parent leaves owing you $700, and you decide not to collect payment.
In all of these cases, you cannot deduct the amount you discounted or forgave as an expense. Instead, you simply report less income.
How to Handle This on Your Taxes
When you file your taxes, you should report only the money you actually receive. If you charged a family $1,000 for the month but accepted $900 because of a discount, your taxable income for that family is $900.
There is no need to “deduct” the $100 difference—it was never part of your income to begin with. Trying to record it as both income and an expense would cancel itself out and add unnecessary complexity to your records.
What About Unpaid Balances?
Sometimes a parent leaves owing you money and you decide not to pursue it. In most cases, this isn’t deductible either. The IRS only allows a “bad debt” deduction if you had already included that amount in your reported income.
For example, if you recorded $200 of income from a parent who only paid $100, you could technically list the unpaid $100 as a bad debt. However, it’s simpler and more accurate to record only the $100 you actually received.
The Bottom Line
Discounts, scholarships, or uncollected payments reduce your income, they aren’t business expenses. To stay compliant and simplify your recordkeeping, always record the actual amount received, not what was originally owed.
For more detail, see the IRS guidance on bad debts and business income reporting at https://www.irs.gov/taxtopics/tc453