Family Child Care Record-Keeping Guide
Almost all family child care providers use the cash accounting method of record keeping.
This is a method in which you record your income when you receive it and record your
expenses when you pay for them. If a parent pays you in January for care that you provided
in December, you report the income for the January year. (This is also true for any Food
Program reimbursements that you receive in January for December meals.) However, if you
receive a check from a parent in December, and don’t cash it until January, you must still
count it as December income.
If you buy something on credit in December, but don’t pay the bill until January, that is a
December expense, because you were legally responsible for it when you signed the credit
card receipt in December. If a parent leaves without paying you for care that you have
provided, you don’t deduct the money that she owes you as a bad debt; you simply don’t
report it as income (see page 97).
It is a good business practice to make sure that you get paid in advance for the child care
that you are providing. Most child care centers make parents pay at the beginning of the
week or month, and you should do the same. This will protect you from parents who don’t
pay on time, or at all, and will help set the proper business tone for your relationship with the
If a parent can’t pay the entire bill in advance, ask her to pay a little extra each week
until she has paid a week ahead. For example: You charge $180 a week and regularly collect
fees on Friday for the next week. Give her a month’s notice that you would like her to pay
an extra $20 each Friday for nine weeks until you have an extra week of payment in your
hands. After that, her payment will go back to the regular $180 every Friday.
Some family child care providers try to avoid paying taxes by not reporting their income.
They ask parents to pay in cash and not claim the child care tax credit for their children.
In turn, the provider often agrees to charge the parents less for taking care of the children.
However, these providers are breaking the law, and if they are caught they will have to pay
back taxes, interest, and penalties.
In addition, because they aren’t reporting their income, many of these providers probably
aren’t keeping receipts and records of business expenses. So if they are caught by the IRS,
they will have few expenses to claim, and thus will have to pay even more back taxes than
they actually owe.
Furthermore, the parents may decide at the end of the year to claim the child care tax
credit anyway, despite promising not to do so. The parent is always entitled to claim this
credit, regardless of any agreement with you. After reading this book you will understand
that there are hundreds of business deductions that you can claim to reduce your taxes. We
hope that all child care providers who read this book will report all of their income, claim all
of their allowable deductions, and encourage others to do so too.
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