Today TaxMama hears from Jodi in California with this question. “I am considering babysitting for my grandbaby in my home for a monthly fee. My son & daughter-in-law want to claim the child care credit on their taxes. Does this mean I’m self employed? Will I have to make quarterly estimated tax payments?”
Dear Jodi,
Yup. It certainly does mean you’re self-employed. Naturally, you’ll be paying taxes on that income.
The good news is, you can dramatically reduce the taxes you pay by learning about tax breaks for child-care providers.
Read the rules IRS outlines in Publication 587 Business Use of Your Home (Including Use by Daycare Providers)
1) You can deduct the use of your home based on the number of hours a year that your home is used as a child-care facility. https://www.irs.gov/publications/p587/ar02.html#d0e1709
2) You can deduct the cost of food you provide your grandbaby. You can either deduct the amount you actually spend – or use. IRS’s standard allowance for each type of meal. Read the details here:
https://www.irs.gov/publications/p587/ar02.html#d0e2146
You might also consider working with a tax professional who specializes in day care services.
Once you learn a bit about how to keep records, and how much your net taxable income will be, you’ll know if you need to make quarterly estimated tax payments. It may turn out that your net earnings, after the tax breaks are low enough that you won’t need to pay much tax on the income at all.
And remember, you can find answers to all kinds of questions about the child care biz and other tax issues, free. Where? Where else? At TaxMama.com
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- IRS Publication 587 :: Chapter 2 – Home-Based Child Care Facility
- IRS Publication 587 :: Day Care facility Meal Allowances
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