Review Your System for Keeping Records
by Linda Kirk Fox, Ph.D.
University of Idaho
Tax season is a good time to review and revamp your record keeping system. A good record keeping system gives you all the information you need when you need it. You will be able to tell from your records when the money comes in and how you spend it.
A simple file system keeps receipts in order and makes tax season a lot easier. Also, good record keeping will help you figure your costs and what you should charge for child care. In a service business, you should base your fee on a salary for the worker (that s you) plus the costs (for example, food and supplies) of providing the service.
One method to keep track of important child care documents is to keep file folders together in a file cabinet or cardboard or plastic file box. Try using six basic subjects: children, finances, business, activities, food, and professional. It is desirable to have a file for each child in your care. The file should include these forms:
- child background and health information
- mutual agreement form or contract with parent(s)
- parent and provider payment schedule
- emergency medical authorization
- accident report
- travel and activity authorization
- authorization for pickup by someone other than parent
For your own information and for tax purposes, you need to keep financial records. Consider developing and using the forms discussed below.
- A parent and provider payments schedule serves as a customer account sheet for each family at the end of each year. Give parents a copy of this information so they can deduct child care expenses on their income tax. Also, give parents your personal Social Security number or Business Employment Identification number because they must include it on their IRS forms. Some parents may also ask you to sign a W-10 form, Dependent Care Provider's Identification and Certification. You are not required to provide the W-10 form for parents. However, if one is presented to you and you refuse to sign, you can be fined $50.
- An income summary is a list of all payments received from all parents.
- A reimbursement summary for the Child and Adult Care Food Program (CACFP), Form 1099, is an essential financial record for your tax filing.
- A mileage record is a good idea. It should document distances from your child care business to frequently traveled destinations related to the business, like the grocery store or library.
- Two other documents you will want are a business expense record and a summary. If you routinely write down all business expenses when they occur, the year-end summary will be easy than if you wait until year end to dig through a pile of receipts.
- The daily attendance record is probably the most important document. This may be in the form of a log which parents sign each time they drop off or pick up their children. Make it precise with the exact time children arrive and leave your care. This will be important in documenting what parents owe you but also in getting the most advantageous tax deduction for the business use of your home. Some child care providers find a large calendar mounted on a bulletin board near the entrance an efficient way to record attendance, hours of business operation, and, frequently overlooked, hours you work on related activities when the children are not present, like cleaning, baking, filling out records, and planning activities.
- Enrollment affidavits signed by parents if you are enrolled in the CACFP are also important documents to keep on file.
- There are other business records to keep on file, including but not limited to licensing and certification information, warranties, maintenance and repair records, insurance information, letters to parents or businesses, training and educational information, and employee records.
- You do not have to use a particular record keeping method. If your child care center is located in your home, you do need to keep records to figure your tax deductions for the business use of your home. Keep canceled checks, receipts, and other evidence of expenses you paid.
Generally, you choose one of two major methods of accounting: cash or accrual. With the cash method, you report income when you receive it and deduct expenses when you pay them.
With the accrual method, you include all income earned whether received or not (for example, bills sent to parents) and deduct expenses when incurred (for example, when bills are received).
The key to an effective, efficient bookkeeping system is to set it up right from the beginning. Use a system that is simple to use, easy to understand, accurate, consistent, and designed to provide information on a timely basis. Income and expenses are the major categories for your monthly and yearly record keeping. List all fees and reimbursements as income.
You can divide all expenses into two categories: direct and indirect. It is especially important to track indirect expenses in relation to business use of your home or car.
Direct expenses include such things as food, supplies, equipment, salaries or wages for workers, repairs, and maintenance for the business. Other direct expenses include insurance (other than health), legal and professional services, licenses and permits, office and record keeping supplies, playground equipment, taxes paid, toys and activity supplies, safety barriers, smoke alarms, postage for mailings to parents, and even the bank charges for your business checking account.
Indirect expenses include utilities (a percentage of the total home use devoted to your business), and other expenses of which a portion is for the business.
For more information on the important topics of contracts and policies, federal tax information, record keeping, and insurance for child care providers, you may contact the author, Linda Kirk Fox, Ph.D., at the School of Family & Consumer Sciences, 103A Niccolls, University of Idaho, Moscow, ID 83844-3188, firstname.lastname@example.org, phone (208) 885-5778.