Financial Management, Insurance and Taxes

Financial Management Strong financial management is the backbone of a thriving Family Child Care (FCC) business. Every decision you make from your business structure to the tuition you charge has a financial impact. The cost of care includes many elements such as rent or mortgage, insurance, materials and supplies, utilities, staffing, and more. Tuition is your primary source of income, whether paid directly by families or supported through child care subsidies.

Creating a thoughtful budget helps you plan for both startup and ongoing expenses, including licensing, legal and accounting fees, educational materials, facility improvements, insurance, utilities, staff wages, and marketing efforts. Budgeting ahead supports sustainability and helps you make confident business decisions.

Equally important is consistent and accurate record keeping. Solid records support licensing compliance, financial reporting, enrollment tracking, purchasing needs, payroll, and tax preparation. Keeping business and personal finances clearly separated will help simplify everything.

Key recordkeeping and financial practices include:

• Separate business and personal finances
  Helps you track revenue and expenses clearly and reduces stress during tax time.
• Track all income
  Tuition, fees, subsidies, grants, donations, and any other sources.
• Plan ahead for taxes and review allowable deductions for FCC providers
  Understanding what you can deduct including space/time use of home, meals, materials, and business-related expenses helps you keep more of what you earn
• Keep all receipts and documentation
  Note what portion relates to business use—include cancelled checks, bank statements, or photos if a receipt isn’t available.
• Seek support from OCIE SBDC or CIELO for budgeting and revenue planning
  Free consulting can help you build a strong financial foundation and long-term sustainability.
• Record meals and snacks served
  Required for food program participation and reimbursement.
• Track all hours worked in your home
  Your work goes beyond open hours—planning, cleaning, training, and communication count too.
• Store all business records for at least three years
  Longer if possible, especially for tax or subsidy documentation.

Helpful Video Resources for FCC Providers

• The Business of Family Child Care
  https://www.tomcopelandblog.com/blog/new-videos-by-tom-copeland-on-the-business-of-family-child-care
• How Do Providers Pay Themselves?
  https://www.tomcopelandblog.com/blog/tom-copeland-video-how-do-providers-pay-themselves

Family Child Care Insurance Needs  Adequate insurance coverage is a critical part of operating a safe, compliant, and sustainable child care business. Insurance helps protect providers, staff, children, families, and physical assets while also supporting licensing compliance, landlord agreements, and funding or contract requirements. Insurance needs vary based on the type of program, size, staffing structure, and facility.

Having comprehensive insurance coverage is essential to protect the organization, meet regulatory and contractual requirements, and support long-term operations.

Liability Insurance Requirements

All licensed Family Child Care Businesses are required to maintain liability protection to operate legally. This may be met in one of the following three ways:

1. Liability Insurance Coverage (Preferred Option) Providers may carry liability insurance with a minimum coverage of:
   • $100,000 per occurrence, and
   • $300,000 total annual aggregate.

This insurance must cover injury or death related to the operation of the family child care business. Providers must ensure the policy remains current and must be able to present documentation of coverage during licensing visits.

2. Surety Bond (Alternative Option) Instead of insurance, a provider may maintain a surety bond in the amount of $300,000. The bond must cover similar liability related to the family child care operation.
3. Parent Affidavit (If No Insurance or Bond Is Maintained) If the business owner chooses not to carry liability insurance or a bond, they must:
   • Notify parents in writing, and
   • Have each parent or guardian sign Form LIC 282 – Affidavit Regarding Liability Insurance. LIC 282_FCC

• This form must confirm that the parent understands:

• • The provider is not insured, or
  • That the provider’s homeowner’s or renter’s insurance may not cover child care-related claims.

Signed affidavits must be kept in each child’s file and renewed annually.

• • If operating in a rented property or under a Homeowners’ Association (HOA), the property owner or HOA may request to be added as an “additional insured.”
  • The provider must comply only if this does not cause cancellation of the policy and the requesting party covers any added premium.

FCC businesses may also be required to provide proof of insurance to licensing agencies, landlords, funders, school districts, or contract partners. Coverage should be reviewed regularly especially when adding classrooms, expanding enrollment, opening additional sites, or increasing staffing levels.

Quick Tip: Insurance needs often change as programs grow. Providers and center operators are encouraged to work with an insurance professional who understands early care and education settings and to review policies annually to ensure coverage remains appropriate and current

Taxes & Recordkeeping As a small business, you are responsible for filing business income taxes with local, state, and federal agencies (unless your business is tax-exempt). Planning for taxes is an important part of your annual budget. Many providers choose to consult with a tax professional who understands child care businesses.

Family Child Care providers may be eligible for:

• Home-based business deductions
  Helps offset costs connected to operating child care out of your home.
• Direct expense deductions
  Items used only for the business such as food, toys, equipment, curriculum, and insurance.
• Indirect expense deductions
  Shared expenses such as rent or mortgage interest, utilities, and property taxes based on the business-use percentage of your home.
• Recordkeeping support
  A tax professional can help ensure compliance and maximize allowable deductions.

Choosing the right tax preparer is an important step in protecting your business and it’s completely normal to feel unsure about where to start. Taxes can be stressful, but you don’t have to figure it all out alone. These free, family child care focused resources are here to help you stay organized and supported throughout the year, so tax time feels easier, clearer, and much more manageable.

Free Resources for FCC Tax & Recordkeeping

Resource / Title	Why It’s Useful / What It Provides
Internal Revenue Service (IRS) — “Sample template for use by childcare providers”	A simple template to help you provide official documentation of care services to families for tax purposes (dates of care, child/parent name, address, etc.). IRS
“Day Care Income and Expense Worksheet” (PDF)	A ready-to-use worksheet to track all income and expenses for your child care business  ideal for annual tax prep or monthly budgeting. Karla Havemeier, Ltd.
“Family Child Care Record Keeping and Taxes” — Resource Guide	Offers guidance on recordkeeping best practices for FCC providers, including how to track home-use expenses, food, attendance, income, and deductions. Child Care Technical Assistance
“Day Care Provider Checklist of Deductions” (PDF)	A comprehensive list of deductible expenses relevant to home-based child care providers helps you make sure you claim everything eligible. Gold Star Direct
“Preparing for Tax Season – Home-Based Child Care Provider Workbook”	A workbook specifically for home-based providers to prepare for tax filing, with clear explanations, step-by-step guidance, and helpful planning tools. Home Grown Child Care
“10 Record-Keeping and Tax Tips for New Providers” (PDF)	Clear, beginner-friendly guidance on best practices for recordkeeping, deductions, space/time calculations, meal logs, etc.  useful for newer FCC providers. Anoka County
“Child Care Provider Audit Technique Guide” (IRS)	Official guidance on what records and documentation are needed to support your income and expense reporting  important if you’re ever audited. IRS

Record Keeping and Documentation

Accurate record keeping is necessary to continuously meet the requirements and provide effective business management.  FCC businesses are advised to create an organized filing system that is easily used to maintain documentation in the following areas:

All Staff: Each person should have their own file or personnel record that includes:

• A personnel record shall be maintained on each employee and shall contain the following information
• Employee’s full name,
• Driver’s license number if the employee is to transport children
• Date of employment
• Date of birth
• Current home address and phone number
• Documentation of completion of training on preventative health practices as required
• Previous Experience, including types of employment and former employers
• Duties of the employee (job description)
• Termination date if no longer employed
• Immunization records
• A signed and dated copy of the Notice of Employee Rights LIC 9052_FCC
• A signed statement regarding their criminal record history
• Documentation of either a criminal record clearance or a criminal record exemption (prior to employment)

All Volunteers: Personnel records shall be maintained for all volunteers and shall contain the following:

• For volunteers that are required to be fingerprinted, a signed statement regarding their criminal record history,
• Documentation of either a criminal record clearance or a criminal record exemption
• Volunteer name and all pertinent contact information is also recommended
• Immunization records
• All personnel records must be kept for at least 3 years following termination of employment/volunteer work
• All personnel records shall be maintained at the child care home and shall be available to the licensing agency for review

All Children: Child files shall be maintain

• Enrollment Forms: Keep up-to-date enrollment forms for each child
• Immunization Records: Monitor and document the immunization status of all children.
• All child records must be maintained for up to 3 years after they leave your care
• Emergency Cards

Daily Sign and Out Sheets:

• Ensure that daily sign-in and sign-out sheets are placed in an accessible location at the entrance of your facility.
• Require each parent or guardian to sign their child in and out every day with their full name and the exact time.
• Use a printed or digital format for easy tracking and storage. Ensure that these records are filed systematically by date.
• Cross-check the sheets daily to confirm that every child is accounted for during operating hours.
• Store these sheets securely for at least 3 years after the child leaves your care, as required by regulations.

Daily Attendance: Track daily attendance to ensure proper supervision:

• Use a dedicated attendance log to track the presence of each child throughout the day. This can be in paper format or a digital attendance system.
• Record attendance at specific intervals, such as the start of the day, after lunch, and before dismissal, to ensure proper supervision during transitions.
• Assign staff members to take attendance consistently and verify it during routine headcounts, especially before and after outdoor play, field trips, or emergency drills.
• Review attendance sheets daily to identify any discrepancies or patterns of absences.
• Keep attendance records for 3 years as part of compliance with licensing requirements.