Getting Started

Things to Think About

Here are some basic steps you need to take when setting up a home-based child care business:

• Licensing
• Recordkeeping
• Applying for USDA food subsidies
• Tax time

Licensing 

State licensing isn’t always required for operating a home-based child care business. If you care for three or fewer children, licensing may not be necessary. But having a license is free and provides the following benefits:

• You are qualified to receive U.S. Department of Agriculture Child and Adult Care Food Program (CACFP) payments, as well as larger Illinois Department of Human Services subsidies and other types of funding.
• You can enroll more children in your child care program.
• You may be able to charge more for your child care services. 

Licensing can take three to six months. Illinois child care licensing standards involve completing detailed documents, but most are fairly easy to understand. Generally, licensing standards cover the following:

• Specific number of children you may have enrolled in your program.
• Background checks - staff and household members (over 13 years of age) of a prospective family home child care provider must undergo mandatory checks.
• Food preparation and nutrition.
• Educational programming.
• Equipment, supplies, safety, transportation and more.

Source: Illinois Child Care: A Guide for Family Home Providers. Download this guide.

View the Department of Children and Family Services (DCFS) publication, Summary of Licensing Standards for Day Care Homes. 

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Recordkeeping

Successful child care providers often have a strong understanding of running a business and use efficient recordkeeping techniques. Consider the following:

• Good recordkeeping ensures smooth operation of your business – saving you time and money in the long run.
• Learning the tax benefits of special programs, such as the Child and Adult Food Program, can encourage a provider to obtain resources that benefit the business and the children.
• Being organized makes you look professional, and your professionalism can generate respect from customers and colleagues and lead to more business opportunities.
• Keeping complete and accurate financial records will help reduce stress at tax time.
• Filing and paying proper employment taxes can help providers hire and keep better employees.

Download the Center’s 8 Rules of Good Recordkeeping.

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Applying for USDA Food Subsidies 

If you are a licensed provider, you should apply to participate in the U.S. Department of Agriculture’s Child and Adult Care Food Program (CACFP). The program reimburses participating child care operators for their meal costs. The per-meal reimbursement amount is higher for providers serving children of qualifying low-income parents. Keep in mind that rates are adjusted annually, and child care providers in the program must serve meals that meet federal guidelines.

It’s important to note that CACFP reimbursements are not taxable. In other words, receiving the subsidy does not affect your taxes. To obtain more information on the CACFP program, click here. 

To sign up for the CACFP, you need to work with a sponsoring organization. You can obtain a list of sponsoring organizations by contacting the Illinois Division of Nutrition Programs at:

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Tax time 

When you need help with taxes, don’t hesitate to ask for help. The Center provides free tax help to Illinois' low-wage workers, including child care providers. When going to a Center site, you should have your totals for income and each type of business expense. Our preparers do not need to look at your records or receipts.

The Center also has a year-round free legal clinic that can advise and assist low-income taxpayers who have tax questions or problems. Learn more about the Center’s tax services. 

If you are looking to hire a tax preparer, know that the best preparers are typically those with the most training—particularly tax attorneys, certified public accountants (CPAs) and Enrolled Agents, who are tax professionals who have passed an IRS test and an IRS background check. One of the best ways to find a good preparer is to get a recommendation from another provider.

When you contact any professional preparer to set up an appointment, be sure to ask the following questions: 

• Are you familiar with special tax rules for home-based child care providers?
• Do you understand the time-space percentage?
• Do you use IRS Form 8829, Expenses for Business Use of Your Home? 
•  How much do you charge for a business tax return?

Caution – If the preparer says he/she doesn’t use the time-space percentage and instead uses the standard average for home-use expenses or has a preprinted list of deductions, beware! This approach may cost you in more taxes or result in a risky return with deductions that you can’t justify. Home based businesses often get asked by the IRS for additional documentation so beware!

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