In my frequent contact with family child care providers in the past five years, I have observed an increasing number of providers seeking tax preparers rather than doing their own tax returns. Enrolled agents have a growing opportunity to expand their business by reaching out to these taxpayers.
This article suggests ways to identify family child care providers in your area and attract them as new clients. It also looks at the services you can offer to give your business an edge over the competition.
Family Child Care Market
Family child care providers are people who work from their own home caring for children. According to a recent study, 18 percent of all children under the age of six who are enrolled in a child care program are in family child care. Over 200,000 providers are state regulated, with significant variation in the regulation rules from state to state. Probably at least another million providers are caring for children without being regulated, either because they care for only one or two children and aren’t required to be regulated, or because they are operating illegally.
Regulated family child care providers are almost exclusively women, usually caring for three to eight children other than their own. They tend to earn relatively little income from their business. According to a forthcoming Final Report of the economics of Family Child Care Study by Kathy Modigliani and others, the average gross income of providers is $21,189. Incomes, however, vary greatly. The average income of the top 20 percent of providers is $39,908. Many providers have a working spouse and thus a larger family income.
Reaching the Providers
Family child care providers tend to be difficult to find. Lists of regulated providers, available from state government offices are usually not useful because they are often out-of-date due to high turnover in the field. In order to effectively identify providers to market your services, Enrolled Agents should work through one of the three networks listed below. Almost every regulated family child care provider is actively connected to one of these three networks.
Child Care Resource and Referral Agencies (CCR&R) help parents find child care programs. They maintain a list (often on computer) of all regulated (and sometimes unregulated) child care programs in their areas. Usually there is one CCR&R in each city. In more rural areas, one agency may cover several counties. CCR&Rs have the most up-to-date list of regulated providers. Sometimes these lists may be purchased for a fee. Many CCR&Rs conduct training workshops, send out newsletters, or send out listings of tax preparers when providers request them.
To find out how to contact your local CCR&R, go to ChildCare Aware, or look in your local phone book under “Day Care” or “Child Care,” or call your local county social service office or the national Association of Child Care Resource and Referral Agencies at 202-393-5501 and ask for the name of your local agency.
Child and Adult Care Food Program (CACFP) sponsors reimburse providers for serving nutritious food. The Food Program is run by the U.S. Department of Agriculture. Each state has a number of local CACFP sponsors who serve providers locally. There may be several sponsors in the same area competing with each other because the sponsor gets paid according to how many providers they serve. A provider can only be served by one sponsor. Sponsors visit the homes of each provider on their program several times a year. Sponsors often conduct workshops and publish newsletters. Providers read these newsletters fairly closely because they want to continue receiving the reimbursements. To contact the local sponsors in your area, go here, or call your local CCR&R.
There are thousands of Family Child Care Associations across the country. These are usually small groups of providers (50-200) who meet regularly and act as trade organizations to promote the interests of their members. They often hold monthly meetings and publish newsletters. There may be more than one local association in your area. To find the names of these associations, go here, or call the National Association for Family Child Care at 801-886-2322.
Enrolled Agents should consider approaching all three of these networks in a similar manner:
- Offer to conduct a workshop on tax issues at local meetings or regional state conferences.
- Set up a booth at local family child care conferences.
- Write an article or regular column on tax tips for their newsletters. Run an ad in those newsletters that accept advertising.
- Attend some of the local association meetings to introduce yourself and become recognized.
- Offer to be a local resource on tax matters and answer questions on the phone.
- Provide a discount for your services to members of these networks.
Family child care providers can sometimes be intimidated by tax preparers, particularly if the tax preparer is a man. To overcome this, Enrolled Agents should introduce themselves to as many providers as possible and tell them that they are available to answer questions now and in the future. Establishing a long-term relationship with individuals and these networks is necessary to make providers comfortable with you.
Organizing Provider Records
One of the biggest problems Enrolled Agents have with family child care clients is having to take a lot of time sorting out unorganized records. Some providers may come to a tax preparer with well-organized tax records, but many do not. Here are some suggestions to help correct this problem.
I’ve written an annual Family Child Care Tax Companion that providers can use to enter all relevant information about their business income and expenses. The book is organized by IRS form so it will be easy to transfer numbers directly onto the tax return.
Some tax professionals have developed their own intake form specifically for family child care providers to fill out that helps providers organize their records at tax time. A commercially developed one, “Day Care Worksheet,” is available from Sauk Rapid Tax Solutions at 612-722-5166.
There are three key record keeping tasks that family child care providers should track throughout the year. They are:
- Tracking the number of hours the home is used for business (particularly hours when the children in care are not present);
- Recording all of the meals and snacks served to daycare children (particulary those that are not reimbursed by the Food Program); and
- Identifying which purchases for the business are used 100 percent for the business and which are used both for business and personal purposes.
There are several family child care calendar and record-keeping systems on the market that can help providers better organize these and other business records. These include the Minute Menu Kids Pro software program and the Redleaf Calendar-Keeper.
Some tax professionals bring all of their family child care clients together for a meeting to cover specialized issues as a way to save time. For example, rather than spending a lot of time filling out payroll forms for each client, a tax professional in Minnesota could hold a meeting of her family child care clients once a year where she teaches them how to fill out payroll forms. The clients fill out the W-2 and W-3 forms at the meeting under the direct supervision of the tax preparer.
Often Enrolled Agents find themselves having to correct a taxpayer’s problem that might have been avoided if the taxpayer had contacted the Enrolled Agent sooner. The three areas where this is an issue in family child care are: sale of the home, hiring helpers (family members or non-family members), and going out of business. Many negative tax consequences can be avoided if the client discusses this early on with the Enrolled Agent.
Encourage your clients to contact you as soon as they begin thinking that any of these three events are a possibility. Put notices about this in your own newsletter or emphasize this point when speaking to an audience of family child care providers.
Gaining An Edge
The key to promoting your services to family child care providers is communicating clearly that you understand their business. Stressing your years of tax preparation experience or your affiliation with a large organization is generally not considered meaningful to most providers. If you currently have very few family child care clients, emphasize that you have experience doing other small business tax returns and that you understand the difference between other businesses and family child care.
You may also want to consider ways to offer additional services to potential or current family child care clients. Offering such services can distinguish you from your competition and can attract new business, because they are particularly difficult issues for many family child care providers to handle. Such services could include:
- Set up medical reimbursement plans for providers who hire their spouse or children. Such plans can save a provider’s family a significant amount of taxes by claiming medical expenses as a business deduction.
- Set up a system to handle federal and state payroll tax forms for providers. This is an area where many providers do not follow the law because they often receive bad advice. Enrolled Agents should emphasize that they understand the rules for hiring family and non-family members and can help providers take advantage of the tax savings if the proper forms are filled out.
- Help providers understand the importance of setting up family budgets and saving money for retirement. This is a good topic for workshops at provider association meetings. Many providers need assistance with some basic financial planning. Promote the idea of providers establishing their own Simplified Employee Pension (SEP). Show them how they can reduce their current taxes and save for their retirement by using this plan.
- Help providers who are audited. Promote yourself as someone who can assist a provider in an audit. This is a good way to attract attention to yourself and gain a positive reputation in the local family child care community.
Although family child care providers may not generate significant revenue as individuals for your business, Enrolled Agents who specialize in this area can expect to build up a significant number of new clients. Providers are looking for help, and the news that you are a tax preparer who understands this business will spread quickly by word of mouth.
from the EA Journal, January/February 1997. Posted with permission and a few minor updates.
Categories: Tax Professionals