According to the IRS, you are entitled to use your home as a business deduction if you have applied for or received a daycare license, or you are exempt from needing a daycare license.
To figure the space used, you would take the amount of square footage that you use for the daycare, and compare it to the total square footage of your house. For example, Jim runs a daycare in his home. His house is 4800 square feet. He only uses the downstairs, which is 2400 square feet. He would divide 4800 into 2400 and get 50%.
If you use parts of your house for your daycare, but not all of the time, you need to figure out what percentage of the time it IS used as business. To do this, compare the amount of time you use the rooms for daycare to the amount of time you use it for family. You might do this by comparing the number of hours per week your daycare is open to the total amount of hours in a week.
For example, Jim's daycare is open 10 hours per day, 5 days per week, for 50 weeks per year. He would multiply 10x5x50=2500. He would multiply the number of hours in a day by the number of hours in a year 24x365=8760. When he divides 8760 into 2500, he gets 28.5%, which is the amount he is allowed to deduct from any expenses he has for the downstairs part of his house. Because the percentage is for the whole house, he must subtract 50% of those expenses, leaving him with a deductable allowance of 14.25%. Jim can deduct 14.25% of any direct expenses. So, when he figures his rent, his utilities, his repairs, etc, he will figure out 14.25% of those figures, and only deduct the final amount as his business expense.
You can deduct 100% of the actual cost of food for your daycare. You can claim one breakfast, one lunch, and one dinner per child, plus three snacks, but only those that were served to the children. If you get reimbursed for food, such as the CACFP program, you can only deduct the amount of money that exceeded the reimbursement cost. You cannot claim the amount you were reimbursed for.
To figure the food deduction, you can either use the actual cost of the food, or you can use the standard meal and snack rates that the IRS allows, as provided by CACFP at the USDA website. I wrote an article specifically about the food deduction, and will include a link to that info at the bottom of the page.