Safeguard Your Childcare Business Before 2027: A Year-End Money Check on Taxes, Insurance and Costs

December 31 is close, and for childcare owners it is the deadline for a set of financial decisions that are hard to fix later. In this session, Steven Erickson, a wealth strategist and financial advisor, and Tim Seldin, President of the Montessori Foundation, joined Anna Leichter of illumine to walk through five checks every childcare owner should make before year-end: taxes, insurance and risk, unpaid tuition, subsidies and what you keep for yourself. This is the written recap. The full recording is at the top of this page.

Key takeaways

Where owners stand

An opening poll on financial readiness heading into year-end put taxes at the top, at 69%, as Tim had predicted. Later, a second poll asked when attendees last sat down with a financial advisor. Tim guessed more than half would say never.

Steve said that is understandable. When you are busy running a business day to day, financial planning is important but not urgent, so it gets pushed down the road. But owners who have met an advisor this quarter are monitoring their plan on an ongoing basis, and he said they are much more likely to have a good exit.

If you don't know where you're going, you're not going to get there.

Why the deadline is December 15, not December 31

Steve's team takes about two weeks to go from a first conversation to a signed, implemented plan. After December 15, they stop taking on new clients so they can finish the ones they already have. His process has three steps:

He said his firm acts as a fiduciary, which means it is legally obligated to act in the client's best interest, and that sometimes the first meeting is simply education and the strategy is not the right fit.

Who the accredited investor strategies are for

Many of the strategies Steve described are open only to accredited investors. According to the US Securities and Exchange Commission (SEC), that generally means a net worth over $1 million, not counting your primary residence, or income over $200,000 a year on your own or $300,000 with a spouse or partner in each of the past two years. Steve noted that the equity in your centers and your business accounts can count toward net worth. The 831(b) strategy covered below does not require you to be accredited.

Check 1: Taxes you can still reduce in 2026

Equipment and accelerated depreciation

Steve said certain equipment can be written off in full this year, so tell your CPA exactly what you bought, whether that is playground equipment, technology or tools for your teachers, and ask whether it can be fully deducted this year or has to be spread over several years. Under the One Big Beautiful Bill Act, according to BDO, 100% bonus depreciation is permanently restored for qualifying property acquired and placed in service after January 19, 2025, and the Section 179 expensing limit rises to $2.5 million.

He also suggested looking at accelerated depreciation on your buildings. Instead of straight-line depreciation on the whole building, parts of it, such as flooring, can sometimes be written off over 15 years, and items such as refrigerators and microwaves over five years.

Tim's advice was blunt: get to know someone like Steve. A CPA's job is to prepare your taxes, he said, not to plan them. A tax strategist stays on top of what is available, matches it to your situation and your appetite for risk, and helps you avoid an unnecessary audit. And the rules change every year, at the city, state and national level.

Oil and gas investments

For accredited investors, Steve described oil and gas as one of the most direct ways to lower taxable income before year-end. Upfront, you can deduct the intangible drilling costs of a project, which he said typically make up 85% to 90% of the investment. Here is the example he gave:

He stressed that his firm only works with established operators that have long track records.

Other strategies Steve mentioned

Check 2: Insurance and lowering your risk

You can't wait until 90 days before your insurance renews to plan for next year.

Tim said the key is a really smart insurance broker who thinks about every risk you face and knows which companies are in the market, because insurers come and go, and can drop coverage in a state or leave it altogether. Keep reviewing your coverage all year, read what is excluded as carefully as what is covered, and work with your insurer on reducing risk before you have a problem.

Owning your own insurance company: the 831(b)

Steve's main recommendation was an 831(b), a small captive insurance company that you own. He said Congress created it in 1986, when farmers were having their insurance canceled across the country, so they could form their own cooperatives. His firm helps set up the entity. He said it does three things for a childcare business:

Claims carry a 10% deductible, Steve said, so a $100,000 claim returns $90,000. Because you are part of a cooperative, he said putting $200,000 into your 831(b) gives you about $400,000 of coverage. For 2026, the Internal Revenue Service (IRS) caps annual premiums for the 831(b) election at $2.9 million.

Steve described the costs as about $6,000 to set up and $6,000 a year to maintain, covering the tax filings and documents, plus retained liability fees of 3% to 10%. His firm invests the money, typically in municipal bond funds, to help offset those costs. After one year and one day, he said, the insurance protection drops off and the money becomes a business reserve. It is set up as a C corporation, so you can take dividends from it if business slows, or let it build year after year and take it with you when you sell your centers.

831(b)s are complex, Steve said, but they apply to nonprofits too. He described a school district in Los Angeles that moved its coverage to an 831(b) to self-insure, and said it saved millions of dollars in claims and premiums.

Check 3: Unpaid tuition

Tuition balances rarely build overnight, Anna said, but they can quickly become a much bigger issue. Tim's first piece of advice will sound unusual to many centers: get your money up front.

One attendee shared that when they tried offering a discount to raise enrollment, the Texas Workforce Commission said they could not. Tim agreed that programs working with subsidized or state-funded families may have different rules, so check yours first. Tim and Anna agreed that tuition and late payments deserve a full session of their own.

Check 4: Subsidies and funding changes

Taking subsidies is like government contracting, Tim said: you may wait a long time for your check. If a significant share of your income comes from subsidies, he recommended three things:

As Tim put it, if there are a thousand providers in a state and one office with two or three people, you may not even get through to ask where your check is.

Getting attendance into the state system on time matters too. Anna explained that illumine integrates with KinderConnect, so in states such as Texas and California, attendance data can be pushed directly into the state system. Steve added that government actions are among the most claimed items on 831(b)s. In his example, an owner who puts $200,000 in this year and loses $100,000 of subsidy income next year could claim and receive $90,000, at a time when competitors are losing the same funding.

Check 5: What you keep for yourself

Steve explained the difference between traditional and Roth retirement accounts and why it matters before year-end:

Steve expects tax rates to rise over time, which is why he favors growing money tax-free. He also pointed out that when children inherit a traditional individual retirement account (IRA), they must withdraw it within a set period and pay tax on it, while what is left in a Roth IRA passes to them tax-free.

Converting at a discount

For accredited investors, Steve described converting a traditional IRA to a Roth IRA through a real estate development project. Once the developer takes out a construction loan, an independent appraisal can lower the value of the investment, and you pay conversion tax on the lower value. In one recent example, he said a $100,000 investment was appraised at $62,000, so clients paid about 40% less in tax. He said these projects have historically doubled in value over three to five years, though past returns do not guarantee future results, and some clients pair the conversion with an oil and gas investment to offset the tax.

What to do first

Asked which of the five checks to prioritize, Steve said to start with your tax liability, while you can still make changes, then get a meeting on the calendar. Every situation is different: for some owners it will be oil and gas, for others an 831(b) or a Roth conversion. Bring the numbers from your management system to that first conversation.

See it in action

Anna showed how illumine helps owners keep their billing numbers in view:

Anna described centers that discovered a child had been attending for three months without ever being billed, because no tuition plan had been assigned. Payment health is designed to catch that. Learn more about child care billing software.

Tim said he does not work for illumine or for Steve, but he has watched the software keep improving and respond to what the American market and its clients need, and that it is designed to make it easy for administrators to see what is going on without having a finger on every pulse.

Resources mentioned

• A year-end packet on 831(b)s, Roth conversions and oil and gas, sent to attendees with the recording.
• Steve's contact details, available through illumine for anyone who would like to book a planning meeting.
• A future session on tuition and late payments, which Tim and Anna agreed deserves its own webinar.
• A related session: The Texas Childcare Squeeze, on subsidy attendance rules and protecting subsidy revenue.

For more on managing your center's finances, read 5 strategies to manage preschool finances, daycare business financial planning, how to build a stress-free billing system or 10 billing questions every multi-center owner should ask. To see how illumine supports your billing, book a live demo.