1. Family child-care providers are self-employed taxpayers who run a business out of their home. Good business records are extremely important for the following reasons:

  • To obey the law by filing your business tax forms each year, reporting the correct amount of income and expenses.
  • To be able to respond to parents’ request for an account of payments they made to you during the year.
  • To make it easier for you to understand your business finances, reach your goals, and know if your business is profitable.

2. There are seven basic rules to good record keeping:

  • Record all income received from each parent and the food reimbursements from the USDA Food Program, if participating.
  • Always get receipts, and then save the receipts for all business purchases, whether the purchase is only for use in the business or for a combined business and personal use.
  • Mark your receipts with indication of business/personal or allocation.
    Organize receipts by category, not by month.
  • Keep track of how much time each week you use your home for your business.
  • Make sure your record keeping system is kept up to date on a monthly basis.
  • After filing your tax return, keep your records in a safe place for five years (exception: records for items that are being depreciated must be kept for their depreciable life plus three years). Keep a copy of each year’s tax return forever!

3. In order to keep child-care business records organized, it is recommended that the provider maintain a separate business checking account where all income is deposited and expenses are paid. Always record the source of all deposits into any of your bank accounts to indicate the source of the deposit (e.g. child care income, husband’s wages, stock dividends, etc.).

4. Receipts should be filed by category, using a method as simple as envelopes to categorize expenses.

5. Various record-keeping aids, including calendars, income and expense tracking forms, and other items are available for purchase from Red Leaf Press, a company in Minnesota which specializes in resources for child care providers. Information on items available for purchase can be obtained by calling 1-800-423-8309, or visit their website at www.redleafpress.org

6. Business income can come from any of the following sources:

  • Parent fees, including any payments for supplies, field trips, etc. in addition to regular child care payments.
  • Gifts from parents, such as a cash bonus, or a gift certificate.
  • Child and Adult Care Food Program reimbursements (excluding reimbursements for the food for the provider’s own children).
  • Government subsidies for low-income parents.
  • Grants from government or private agencies to purchase equipment or make home improvements.

7. Keeping an accurate record of parent fees:

  • Keep careful records showing how much each parent paid you for your services, the date of the payment, and the check number if applicable, as well as how many hours you provided care for each child.
  • Appendix 1 contains a sample worksheet for tracking of income.
  • Give parents a receipt to establish an accurate income record for your business.
    receipts are especially important when dealing with parents who pay in cash
    parents should sign each receipt, with both parent and provider keeping signed copies.
  • Receipt books can be purchased at most office supply stores or at discount department stores (e.g. Fred Meyer).
  • Keep a monthly total of the income you have received.

8. Form W-10 and the child care tax credit:

  • If parents wish to claim the child care tax credit on Form 2441, Child and Dependent Care Expenses, they must have the provider’s name, address and social security number (or taxpayer identification number).
  • Due to increased identity theft, it is advisable to obtain a Federal Employer Identification Number (EIN) that can be provided in lieu of the provider’s social security number. To apply for an EIN,  go to the IRS Web site, www.irs.gov and enter "employer id number" in the search box in the top right corner of the homepage. Click on "Employer Identification Number," then "Apply for EIN Online".
  • It is the parent’s responsibility, not the provider’s to obtain Form W-10 and ask the provider to fill it out. However, it's a good idea to proactively prepare the year-end information for the family, sign the information, and have them sign a copy of the information for you to keep in your file.
  • Providers who refuse to fill out Form W-10 are subject to a penalty of $50 per form.
  • A copy of Form W-10 is included in Appendix 2.

9. Note regarding the USDA Food Program

  • Additional records required if participating in USDA Food program:
    Attendance records
    Meal counts (should also track unreimbursed meals)
    Menus
  • These items can be valuable information to provide additional support for food expenses in an IRS audit
  • Provider could obtain copies of the above items from the USDA program if lost and later needed for an audit
  • Turning in documentation to USDA Food program helps provider stay up-to-date on record keeping

10. Keeping track of expenses:

  • Save receipts for all direct expenses of your business: food, toys, supplies, diapers, etc.
  • Save all receipts associated with the cleaning, repair and improvement of your house: broom, hammer, garden hose, light bulbs, etc.
  • Save all of the receipts for household supplies, even if you claim only a portion of them. For example, if you claim 50% of the toilet paper purchases as a business expense, save all receipts for the purchase of toilet paper in your records.
  • A partial record is better than no record. Recreate a receipt if you were not given one, forgot to get one, or if you lost it.
  • Be sure the store name is on the receipt. If not, write it in immediately.
  • If a receipt doesn’t indicate what the item is or if there are business and personal items on the same receipt, mark on the receipt to clarify what it is.
  • Indicate payment method on the receipt (e.g. “cash,” “Visa,” “check #208”, etc.).
  • If in doubt about whether an expense is deductible, save the receipt to discuss the expense with your tax preparer at the end of the year.
  • File your receipts by category, not by month. For example, keep all food receipts together in one envelope.

11. Food expenses - what is deductible?

  • The cost of any food consumed by the children you are being paid to care for, including candy, chips, pop, etc.
  • None of the cost of food that is eaten by the provider at home is deductible.
  • None of the cost of food eaten by a provider’s own children is deductible.
  • None of the cost of food first prepared for the childcare children, and later eaten by the provider’s family is deductible.
    Only 50% of any food consumed by an employee of the provider is deductible.

12. Tracking food expenses:

  • The IRS allows family child care providers to use standard meal and snack allowances in lieu of actual expenses. The standard allowance may be claimed by any family child care provider whether or not they are registered or licensed. If the provider chooses to use the standard meal allowance rates to calculate food costs, it is not necessary to keep grocery receipts.
    • Providers may use standard rates for a maximum of one breakfast, one lunch, one dinner and three snacks per day per child.
    • If you choose to use the standard rates to deduct food expenses for a particular year, you must use it for all food expenses in that year.
    • Records must be maintained to substantiate the meals claimed. These records should list each child’s name, dates and hours of attendance, and type and quantity of meals and snacks served.
    • Standard allowances are as follow (note that for the first time rates have declined in 2017 over the prior year rate):
      • Breakfast: 2016 Tax Return $1.32; 2017 Tax Return $1.31
      • Lunch: 2016 Tax Return $1.32; 2017 Tax Return $1.31
      • Dinner: 2016 Tax Return $2.48; 2017 Tax Return $2.46
      • Snack: 2016 Tax Return $.74; 2016 Tax Return $.73
  • The standard meal allowance does not take into account the cost of the cost of nonfood supplies such as paper plates, utensils, containers, etc.
  • Appendix 7 contains a worksheet that can be used to track meals served.
    Alternatively, providers may keep receipts of all grocery costs and the cost of the groceries provided to the children in paid care to calculate actual food expenditures.
  • Meal expenses may be claimed for tax return purposes even though they were not eligible for reimbursement under the USDA Food Program. For example if you served meals to a child who you chose not to include for reimbursement under USDA, the meal expense may still be claimed for tax purposes. If you served more meals to a child in a day than can be reimbursed by USDA, you are entitled to deduct all meals and snacks for tax purposes.
  • Any reimbursement received from the USDA food program is counted as income to the child care business (and is offset by a deduction using one of the methods above).

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Record Keeping Basics