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DOUBLE TAP TO ZOOM WITH PHONE OR TABLET Family Child Care Record-Keeping Guide Recording Income 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 parents. 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. 10 COPYRIGHTED MATERIAL