I think whatever works for YOU as long as you DO eventually claim it and give them a receipt for it is fine - it is not like we are talking enough to make a huge difference in tax owed here like with a Real Estate deposit

I personally do NOT spend the Security Deposit - it gets deposited it into my 'savings account' and keep it there for when they leave and if they give me LOTS of notice they are leaving I try to budget for that dip in income and than can leave it in my savings however if I get only two weeks notice and am not prepared and I 'need' the income I transfer it out - it is a forced savings for me to have that rainy day fund this business requires - plus to save for the tax bill and other things that might come up

Book keeping wise - it sits there in their account as a 'credit' and when proper notice is given it is applied to their last two weeks of care than I remove the credit and apply to their account and therefore it will show up in their 'annual receipt' for that tax year it was applied.