Starting Your Family Child Care Business: A Guide for New Providers, Part III
Congratulations on embarking on your journey as a family child care provider! You’re joining a dedicated group of individuals passionate about nurturing young children while earning an income. Each year, thousands successfully set up their own child care businesses, and now it’s your turn. Welcome to this caring and impactful profession!
This guide introduces key topics every family child care provider needs to know to run a successful business.
Importance of Keeping Accurate Records
Maintaining accurate and organized records is a crucial aspect of running a professional and successful family child care business. Good record-keeping not only demonstrates your professionalism but also has the potential to save you significant money when it comes to taxes. For every $100 of business expenses you carefully track, you can save approximately $30-$40 in taxes.
All income you receive from your business must be reported, including parent fees, government payments for low-income families, Food Program payments, and grants. At the end of each year, it’s a good practice to have parents sign a receipt that confirms the total amount they have paid you.
When it comes to deductions, you can claim 100% of the expenses for items used exclusively for your business, such as advertising, training materials, and activity supplies. Additionally, you can deduct a portion of the expenses for items that serve both your business and your household, such as cleaning supplies, utilities, and furniture.
Don’t forget to claim deductions for household furniture and appliances you owned before starting your business if they are now being used in your child care operations. Keeping a detailed list of these items is essential, and tools like the Family Child Care Inventory-Keeper from Redleaf Press can be very helpful in tracking them.
Your business officially begins when you are ready to care for children and start advertising your services, even if this happens before you receive official licensing or regulation. From that point on, you can begin deducting business-related expenses.
It’s also important to keep track of your vehicle mileage for trips that are primarily for business purposes, such as visits to the grocery store, bank, park, school, or library. Using a tool like the Family Child Care Mileage-Keeper from Redleaf Press can help you accurately track both business and personal mileage.
The Three Key Practices for Tax Savings
To maximize your tax savings, focus on these three key practices throughout the year:
Save All Receipts: Keep receipts for all expenses related to your home or apartment, as many of these can be deducted.
Track Meals and Snacks: Record all meals and snacks served to the children, especially those not reimbursed by the Food Program.
Log Your Work Hours: Keep a detailed record of all the hours you work in your home, including time spent on business activities such as cleaning, preparing activities, and record-keeping, in addition to the hours children are present.
You need to ensure that at least 90% of your taxes are paid each quarter. If you’re married, your spouse can adjust their paycheck withholding to cover your taxes. If you’re single or your spouse is self-employed, you must file quarterly estimated taxes using IRS Form 1040ES, with deadlines on April 15th, June 15th, September 15th, and January 15th.
If you hire a substitute or helper, you must treat them as an employee, which means withholding the appropriate federal and state payroll taxes.
Review your records regularly—at least monthly, if not weekly—and organize your receipts by expense category (e.g., toys, supplies, utilities). Be sure to keep all supporting documentation, such as canceled checks, credit card statements, calendar notes, and photographs, to substantiate your expenses. Retain your records for at least three years after filing your taxes, as you may need to amend your tax return or provide documentation in the event of an IRS audit.
The Child and Adult Care Food Program (CACFP)
Joining the Child and Adult Care Food Program (CACFP) is highly recommended. The money you receive for the meals you serve the children in your care is considered taxable income, but it’s still financially beneficial to participate. A typical provider can receive between $600 and $1,250 per child per year through the program. It’s important to note that any money you receive for meals provided to your own children is not taxable.
You don’t need to save food receipts if you use the Standard Meal Allowance method to claim food expenses. This method allows you to multiply the number of meals and snacks you serve by a standard meal allowance rate set annually by the government. Your Food Program sponsor will provide you with the current rates.
Finding a Qualified Tax Professional
Tax rules for family child care providers are unique, so finding a tax professional who understands these rules is crucial. Start by asking other providers in your area for recommendations. Look for someone with experience in family child care taxes or with credentials such as an Enrolled Agent or Certified Public Accountant.
Remember, you are entitled to deduct all expenses that are “ordinary and necessary” for your business. This includes a wide range of items around your home, such as property taxes, mortgage interest, utilities, house repairs, and more, as well as items for the children, household supplies, furniture, appliances, and other business-related expenses.
By following these guidelines, you can ensure that your family child care business is not only a place of nurturing and care for children but also a thriving and financially sound enterprise.
