Note: The information below is for information only and not meant as tax advice.
Family Child Care Taxes
First, please seek professional tax advice. I am just giving you some basics to get your started. I suggest finding an accountant that is knowledgeable about home child care tax rules. I found an accountant who gave me an hour of her time (for free) and explained the basics and what information she needed from me at tax time. Over ten years later, I'm still using the same accountant. It's possible to do your own taxes, but I still don't feel that confident.
If you choose to keep records on the computer there are several options of software that can help you. The first year I kept records on my computer, I used a free version of Quicken. I recorded everything in a checkbook register, labeling every item with a category. At the end of the year, it was easy to print reports with each category added up.
The next year I purchased Minute Menu Kids Pro. It was a big step up from Quicken because it's designed specifically for child care providers. All the information is stored on their servers, which some may be uncomfortable with, but I have come to appreciate this system. I can access my account from any computer with an internet connection. This came in handy when my computer crashed and I lost everything just a few months after I signed up for Minute Menu Kids. I was relieved all my information was safe. Also, I could still access my account from my husband's computer while mine was being worked on. I have since gotten a new computer and I didn't have to pay for any license upgrades or anything, just download their interface to the computer I want to access my account from.
If you are good with spreadsheets, you could easily customize a spread sheet on your computer that would work for recording your taxes.
The other option is old-fashioned paper and pencil method. Redleaf Press puts out a Calendar-Keeper that is set up for the child care provider. Or you can use ledger paper. I used ledger paper for several years in the beginning.
The method you choose doesn't really matter. What matters is that you choose a method and stick to it.
I don't feel confident enough to explain the entire process and what you can and cannot deduct, etc. I can point you to some great resources.
Entering every receipt, utility payment, mileage, payments made to you, etc. is a big job! A few times over the years, I put everything into a big shoe box, then spent days at tax season trying to make sense of it all.
I then tried a monthly entry date. It was better, setting aside one Saturday per month to get things entered. It worked okay that way.
I then tried a weekly entry system. On my child care support group Child Care Cubby we have "Tax Time Tuesday" in which we remind each other to get caught up on our tax entries. At first I wasn't able to keep up with it and fell behind, but then would work to get caught up.
The last couple of years, I was able to enter receipts, payments, income, etc. the day it happened! It just took a few minutes every couple of days. The feeling of being caught up is awesome!
I strongly urge you to set up a routine for entering tax information into your system. Find what works for you and stick to it.