Question:
My church is working to have a daycare operating on premises this fall. The daycare will be for-profit. I understand from other churches that they operate daycares under the umbrella of their IRS not-for-profit status. How can I operate our daycare under our not-for-profit status?
Answer:
I will assume that the daycare is church owned. Essentially you do not have to do anything from an IRS perspective. You will not violate your 501(c)3 status. Daycares have long been designated as a ministry of the church. They religiously educate the little ones and assist the families by providing safe care.
Typically the daycare may operate with a positive cash flow but it will not typically be profitable. After paying for salaries, equipment & supplies there may still be a positive cash flow. However, a church would not typically pay itself for mortgage/rent, insurance, utilities, common area maintenance (CAM), etc. If they did they would quickly eat up the remaining positive cash flow and find it at a break-even or loss. Our church has a 170 student preschool & elementary. We operate on a slightly positive cash flow basis, however, we would show a loss if I allocated costs to them for facilities and overhead.
In our denomination, we need to have denominational approval. There are special applications, as well as, annual requirements & reports that must be filed with them. You will also want to fully understand your state & local daycare laws. They will be the ones who present you with the flaming hoops to jump through. According to NC state law if I operate our preschool for no more than 4 hours per day, I do not have to comply with the most stringent state daycare requirements. Do you research.
Filed under: Administration, Daycare, Filing Requirements
