In general, to set up your business as a non-profit, you must establish a non-profit corporation through your state secretary of state's office. The process to do this is fairly easy. However, I don't recommend that you do so. First, there are many drawbacks to setting up a corporation: you will lose the ability to deduct your house expenses, there's more paperwork, and any profit you make must be turned back to the corporation (in other words, you can't just keep all the money you make).
The reason why providers consider setting up a non-profit corporation is to be eligible for charitable contributions from corporations and individuals. To do so, you must have your non-profit corporation become tax exempt. This is a difficult process and one that I think most providers would not be able to do. Becoming tax exempt requires getting approval from your state and the IRS. The IRS won't give you this status unless you can show that your program benefits the broader community and I think this would be hard to show if you are only caring for a handful of children.
In summary, trying to become non-profit tax exempt to qualify for charitable contributions is not a good idea. If you still want to consider doing this, consult with a tax accountant and an attorney. Tom

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