I just recently started doing a daycare out of my home...how do taxes work now?

Question

The only thing my contact at social services knew was that I don't pay out of paycheck but through what I buy at stores for my daycare.

Answer 1

In a nutshell:

1) Keep track of what money you receive - that's your income.

2) Keep receipts for anything you buy that is exclusively for the children you're being paid to watch.  Snacks, age-appropriate toys, etc.

3) Keep copies of your heat & electric bills; a portion of them will be deductible.

You'll be able to deduct a portion of your rent or mortgage and real estate taxes.  What you need before filing out the forms (or better yet - having someone else do it, since it will be really confusing if you have no expereince) is the total square footage of your home, the total square footage of the areas that the daycare children have access to, and the total hours that your home was used for daycare.

Find someone to help you prepare your return - at least the first year.

And most important - remember to put money aside for your self-employment taxes.  Those are roughly 15% of your net.  (Income less all your expenses).   And then Income tax is figured last.  Even if you're in a low-income tax bracket, you'll still owe the self-employment taxes.  It's a nasty surprise to those who have not previously been self-employed.  So squirrel a portion of your income away, and pretend it's not even yours - so you'll have it ready when the tax bill is due.

Answer 2

I agree with Cat, but you cannot just "Squirrel" away money for your taxes. If you expect to owe $1,000 or more, you you need to file estimated payments to cover your income and self employment tax liability. payments are due April 15, June 15, Sept. 15 and Jan. 15 of the following year.

If you have a job where you can increase your withholding, that would work also.

Remember that income tax is not due on April 15th. Income taxes are due when the income is earned.

Answer 3

You need to read the IRS Publication 587 , Business Use of Your Home, (including use by daycare providers) as it gives all the instructions you need for claiming tax deductions for your home business.

Publication 587 (2007), Business Use of Your Home  http://www.irs.gov/publications/p587/ind...

To deduct expenses for business use of the home, part of your home must be used regularly and exclusively as one of the following:

- The principal place of business for your trade or business;

- The place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business; or

- In connection with your trade or business, if you use a separate structure that is not attached to your home.

Deductible expenses for business use of your home include the business portion of real estate taxes, deductible mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs. You may not deduct expenses for lawn care in general or for painting a room not used for business.