Where is the income reported from the 1099-K? Is there a related Schedule C for self-employment? Is there a profit reported on the Schedule C? She would need to have earned income to qualify.
If you qualify for the Child and Dependent Care Credit and had $5000 in an FSA account, there would only be $1000 of expense left to use toward the credit. The credit only allows for $6000 worth of expense used for the credit when you have 2 or more children. $5000 was already tax free due to the FSA, so that only leaves $1000 to use for the credit.
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