Getting Started in the Business of Family Child Care - Part 3

I’ve created a new publication for new family child care providers. It describes the most important aspects of becoming a successful family child care business. You are free to distribute this to anyone.

I will be posting sections of the publication over the next five weeks.

Getting Started in the Business of Family Child Care

Congratulations on becoming a family child care provider! You are among a special group of individuals who have chosen the profession of caring for young children. You have chosen this work because you love children. You also have an opportunity to earn money to support your family. Each year thousands of providers have successfully set up their businesses, and we welcome you to this caring profession.

This publication introduces the most important topics that every family child care provider needs to know about to run a successful business.

Introduction: How to Begin

1. How to Promote Your Business

2. How to Create Contracts and Policies

3. How to Keep Records

4. How to Reduce the Risks of Running a Business

5. How to Manage Your Money and Plan for Retirement

How to Keep Records

Taking the time to keep good records of your business is a sign of professionalism as well as a means to save you money. For every $100 of business expenses you track, you will save approximately $30-$40 in taxes.

• You must report as income all monies you receive from your business. This includes money from parent fees and government payments for low-income parents. It also includes Food Program payments and grants. At the end of the year, get parents to sign a receipt indicating how much they paid you.

• You can deduct 100% of items used exclusively for your business (advertising, training, activity supplies, etc.). You can deduct a portion of items used by your business and your family (cleaning supplies, utilities, furniture, etc.).

• You are entitled to claim expenses for all the household furniture and appliances you owned before you went into business that you are now using in your business. Make a detailed list of all items used in full or in part for your business. The Family Child Care Inventory-Keeper from Redleaf Press can help you keep track of these items.

• You can begin deducting expenses as soon as your business begins. It begins when you are ready to care for children and are advertising that you are ready. This may come before you are officially licensed or regulated.

• Keep track of your vehicle mileage for trips that are primarily for business: to the grocery store, bank, park, school, library, and so on. The Family Child Care Mileage-Keeper from Redleaf Press can help you keep track of mileage for business and personal reasons.

The Three Most Important Things

• Here are the three most important things to do throughout the year to save you the most money on your taxes:

  • Save all receipts for all expenses associated with your home or apartment;

  • Keep track of all the meals and snacks you serve to the children, particularly those that are not reimbursed by the Food Program;

  • Record all the hours you work in your home, including the hours children are present as well as the hours children are not present and you are doing business activities such as cleaning, activity preparation, record keeping, and so on.

  • You must pay in at least 90% of the taxes you owe each quarter of the year. If you are married, your spouse can have enough withheld from his/her paycheck to cover your taxes. If you are single or your spouse is self-employed, you must file quarterly estimated taxes, using IRS Form 1040ES. The deadlines are April 15th, June 15th, September 15th and January 15th.

  • If you hire a substitute or helper in your business, you need to treat this person as your employee. This means withholding a series of federal and state payroll taxes.

  • Review your records at least monthly, if not weekly. Use envelopes to store receipts by different expense categories (toys, supplies, utilities, and so on). Keep cancelled checks, credit card statements, calendar notations, photographs, and other written records to document your expenses.

  • Keep your records for at least three years after filing your taxes. You can amend your tax return, and the IRS can audit you, back three years.

  • Join the Child and Adult Care Food Program (CACFP). Money you receive for the meals you serve the children in your care is taxable income. A typical provider will receive about $600 or $1,250 per child per year. You are always financially better off joining the Food Program. Any money you receive for your own children is not taxable. You do not have to save food receipts if you use the Standard Meal Allowance method to claim food expenses. This method requires you to keep track of all the meals and snacks you serve and multiply them by a standard meal allowance rate that is set each year by the government. Your Food Program sponsor will know this rate.

  • There are many tax rules unique to family child care providers. Finding a qualified tax professional who understands these rules can be a challenge. Start by seeking out other providers in your area who use a tax professional. Look for a person who has experience doing family child care taxes or who has a credential such as an Enrolled Agent or Certified Public Accountant.

  • You are entitled to deduct all expenses that are “ordinary and necessary” for your business. This includes hundreds and hundreds of items around your home, such as house expenses: property tax, mortgage interest, utilities, house depreciation, house repairs, house insurance, cable TV, fence, landscaping, well, garage, rent, etc.; items for the children: food, arts and crafts supplies, books and magazines, diapers, field trip expenses, etc.; household items: lightbulbs, toilet paper, paper towels, cleaning supplies, lawn maintenance service, kitchen supplies, fire extinguisher, household tools, yard supplies, lawn mower, snow blower, laundry detergent, etc.; furniture and appliances: sofa, chairs, beds, TV, washer, dryer, tables, rugs, freezer, refrigerator, microwave, rocker, stroller, etc.; other expenses: advertising, car loan interest, business liability insurance, trainings, computer, business books, etc.

  • For more information see my Family Child Care Record Keeping Guide from Redleaf Press for a list of more than 1,000 allowable deductions and more help with record keeping.

Tom Copeland - www.tomcopelandblog.com