If you are a daycare provider, you may receive Form W-2, Wage and Tax Statement , for income from wages from your employer. Whoever controls what work you do and how you do it is your employer. This could be a person who lives in the home in which you work or an agency through which you work. If you provide daycare services in your home, any payments you receive is generally considered self-employment income and must be reported on Schedule C, Profit and Loss from Business . If you are self-employed and your net earnings are $400 or more, you must pay self-employment tax on the income you report on Schedule C. In addition, you may need to make estimated payments to cover the amount of self-employment tax or income tax associated with the income you report on Schedule C.
You may be able to reduce your taxes by deducting unreimbursed, work-related expenses. These expenses may be claimed as miscellaneous itemized deductions on Schedule A, Itemized Deductions. If they are attributable to being self-employed, they may be deductible on Schedule C. You should keep receipts to substantiate these expenses.
Examples of some of the items you may be able to deduct include:
- The cost and upkeep of uniforms if they are required for work and not suitable for everyday wear
- Work-related supplies that you provide, such as markers, crayons, diapers, and wipes
- Fees for licensing/bonding
- Liability insurance
If you provide services in your home, you may be able to deduct a percentage of the cost of maintaining your home. These costs include rent, utilities, maintenance, property taxes, mortgage interest, depreciation for a home you own and insurance. If you provide meals for the children in your care, you may be able to use a standard allowance for both meals and snacks that you provide, without the need to keep receipts for the food. To claim these deductions, you should keep detailed records of how many days and how many hours each day each child is cared for in your home. You will also need to calculate what percentage of your living space is available to the children.