Im a stay at home mom but I am watching 2 children during the week and bringing in around $200 a week.... how I will claim that income and what documents I will need ??

[harley-quirion10]

They pay me in cash/check and I just don't want to get myself in trouble come tax time... I'm also wondering if I will have to pay in or if I'll still get a return! I'm single and have a dependent

[TaxGuyBill]

Is that your only taxable income during the year?

If so, you probably won't owe anything and will probably get a small refund.  At about $10,000 a year (before any expenses), there won't be any income tax.  As for the Self Employment tax, the Additional Child Tax Credit and the Earned Income Credit (assuming you qualify for it) should more than offset that, resulting in a small refund.

Actually, with $10,000 of gross income, it is quite possible that your daycare would actually have a LOSS (at least for the first year).  In that case, you would not owe any income tax, but you also would not get a refund (you need some income for the Additional Child Tax Credit and the Earned Income Credit).


If expand your daycare business, I would recommend reading the "Family Child Care Record Keeping Guide" by Tom Copeland.

[Carl]

TGBill, I can't see how anyone running a daycare can survive on 10K gross business income a year. They'd be lucky to have half that left as taxable profit after business expenses. TO me, it's unrealistic to think daycare is one's only source of income at $200 a week. Now if they have say, for example, veterans disability at 100% then maybe. But if they're "working" (even self-employed) they could putting that 100% disability rating at risk.  
In Jan of this year an aquantaintance of mine who was received $700 a month assistance from the govt. after being released from serving 4 years in prison, got that allowance cut. Seems they were "working under the table" for cash only, making about an extra $700-1000 a month. Turns out one of his "clients" filed a 1099-MISC for what they paid him, and that's how he got "caught". What the real kicker is, he now has to pay back the $700 a month he received for all of 2016. That's $8400.
ON top of that, interest *and* penalties *and* fines accumulate on the unpaid balance. Good news is, it's motivated him to work more. Looks like he'll have it paid off by December. But even then he will have "paid back" close to $10K.
The irony of it is, I told him in 2014 when he was released from prison, not to do what he did. He's one hell of a worker and definitely not lazy. He's into landscaping and really knows his stuff. A "green thumb" so to speak. I tried to get him to start his own business in 2015, but his excuse was "I don't want to lose my $700/mo govt payment". Well, now he's lost it, has to pay it back and then some.  But so far this year, looks like he's going to net over $30K profit after expenses. (I'm helping him with his book keeping as a sort of "training" for him, and will walk him doing what will be his first tax return as self-employed, when the time comes.)
Persoanlly, I think it was a lack of confidence on his part. But some people have to learn the hard way I guess.

[Opus 17]

Without more info, I'd guess that @harley.quirion10 was using the day care to supplement some other income, although that might be non-taxable (like gov't benefits or child support) or it might be other taxable income.

Anyway, the taxpayer should expect to pay the 15% SE tax for sure, and if it comes back in the form of the additional child tax credit or EIC that will be a pleasant surprise.  (It could be anticipated in advance but would need a lot more input than we have now.)  Whether the taxpayer owes 10% or 15% income tax (or no income tax) depends on their other taxable income.

[TaxGuyBill]

@Carl   As Opus indicated, there are MANY people who live off of Savings, Child Support, Government Benefits, Gifts, etc.

[SweetieJean]

Or maybe OP lives with another adult.

[Opus 17 · Accepted solution]

You are a small business and will need to file a small business tax return (Schedule C) as part of your personal tax return. 

Firstly, you should expect to have to give your social security number to your clients so they can use your day care fees to qualify for the child care credit on their tax returns.  If you don't want to hand out your personal SSN, you can apply for an EIN (employer identification number) -- you can do it online and it takes about 20 minutes.  (If you have employees you must have an EIN; if you don't have employees you don't need one, you can use your SSN, but having an EIN helps keep your SSN private.)  https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-n...

Second, you need to keep excellent accurate records of your income and expenses (food, toys you buy for your business, etc.)  You should also keep records of your household expenses (utilities, insurance, property taxes, mortgage).  You will owe income tax and self-employment tax on your net income (profit after deducting expenses) so you will want to be thorough about documenting your expenses.  Since you have an in-home day care, you can include a portion of your utilities, home owners insurance, property tax, and depreciation on your home (wear and tear) as expenses, which will help to reduce your net taxable income.

Then, you will owe two kinds of tax on your net profit.

You owe 15% self-employment tax on the net profit from your business.  This is the same as social security and medicare tax that employees pay, except that an employee pays 7.65% and the employer pays a match (that the employer doesn't see).  When you are self-employed, you pay both halves.  SE tax is not affected by your filing status, dependents, or personal deductions.  It is only affected by your business income and business expenses.

Then you also owe income tax on all your income.  The net income from your business on schedule C flows to your main personal tax return and gets combined with any other income (other jobs, investments, etc) and is then adjusted by your personal deductions, dependents, and credits, and you then owe 0%, 10%, 15% or 25% depending on your overall income.

See the IRS home daycare section for links to all these different steps.  https://www.irs.gov/businesses/small-businesses-self-employed/child-care-tax-center

You should expect to pay estimated taxes 4 times a year.  April 15 for your income from Jan-March; June 15 for your income from April-May; Sept 15 for your income from June-August; and January 15 for your income from Sept-December.

There are online calculators and paper forms you can use to estimate your tax payments.  If this is your only taxable income, you would need to pay 15% to cover your SE tax only because you won't owe income tax based on your situation.  (If you really are single and have no other income, although I wonder how you support yourself.  Maybe a boyfriend/girlfriend or child support from an ex.  It doesn't really matter, as long as you know that you owe 15% SE tax on your business profit, and then you owe income tax based on all your income and deductions.)

If this is your first year in business you probably won't owe a penalty if you don't make the estimated payments. However, be careful about leaving yourself a big tax bill at the end of the year if you don't make the payments.  You will owe at least 15% tax, and maybe more depending on your other income and deductions.

[Carl]

Additional information:
Chances are, the clients who pay you will qualify for, and desire to claim the child care credit on their own tax return. TO do that, they are required to provide the IRS the SSN or EIN of the person  or business they paid for the child day care services.
By law, you are required to provide your clients your SSN or EIN so they can claim the child care credit. Failure to do so will result in hefty fines/penalties for you. Now, I can't speak for you. But for me, there is no way on this green earth that I will ever give out my SSN to client's customers. I don't care if they're family. Just not gonna happen. So that's why I have an EIN for my business. As stated by Opus 17 above, you can get the EIN "right now" online. Took me less than 10 minutes to get mine. When you get your EIN *DO NOT LOSE THAT NUMBER*.
At the end of the year when you are finalizing your books and getting things ready for tax reporting, the IRS has a form you can use to provide the required information to your clients. It's IRS Form W-10 and you can print off as many as you need at <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/fw10.pdf">https://www.irs.gov/pub/irs-pdf/fw10.pdf</a>. Then fill one out for each client and provide it to them. Since this form is not sent to the IRS (it's for required client information only) you can also put somewhere on that form the amount the client paid you in 2016, and then provide it to the client no later than Feb 15 during the tax filing season. Wouldn't hurt to keep a copy of each one you issue in your own business financial records either.