Betting you all know the answer!

[kwhite1022]

Heres my question: Im just about to start doing daycare (1 child) in my home for a family friend. When she and I set this up, I reminded her that since I am not licensed she cannot claim child care on her taxes, but she still opted to go with me rather then a center. Here is the issue, she said she has found out that she can get the deduction if I claim the income.....and thats where my question comes in.....how do I do that, and how involved will it be? Any links or suggestions on where to go to find out more about this would be greatly appreciated. TIA

 

[Tinker'n'Fun]

Not a tax specialist or an accountant, but I do know enough that all my daycare at my house was NOT to be claimed... I am sure that there will be many posters who can go into more detail, but I was told that it definetely was not worth it if I had to claim the income and pay taxes.

 

[AuroraBeauty]

deleted.

 

[LanaJae]

The law is that you have to claim that income. Obviously there are people everywhere who don't.

In order to realize the same income after taxes, you would probably need to make double the amount you originally agreed upon.

The parent doesn't need your permission to claim daycare expenses, you could be setting yourself up for a big mess.

 

[stitchlovestink]

and if the mother claims it, and OP has to declare the income, wouldn't she definitely need to be licensed? Just a thought...
BTW, how can she claim it w/o the provider's SS#? I thought you had to have that or the Business' tax ID# to claim it. I could very well be wrong though. It certainly wouldn't be the first time.

 

[a1tinkfans]

The law is that you have to claim that income. Obviously there are people everywhere who don't.

In order to realize the same income after taxes, you would probably need to make double the amount you originally agreed upon.

The parent doesn't need your permission to claim daycare expenses, you could be setting yourself up for a big mess.

More like triple, since technically YOU pay in to Social Security for you and business "owner"
This is HUGE deal and you should really speak with a professional so if you open a can of worms you will know what you are in for.

 

[nena]

When my children went to licensed child care, i paid $100/week/per child. She would give me a form to submit at tax time and I would get a deduction. She moved away so we had to go with someone else. This child care provider was not licensed, therefor she only charged $75/week/ per child and I didnt get a deduction, but I saved $25/week/ per child!!

 

[ShariVT]

if she is going to claim it you would need to have more then one child to make it worth the hassel it will be for you and at the very least triple her cost. I do believe the law is if asked you must provide you ss# to anyone you daycare for. I use to daycare for 10 years and was always told the amount they could of gotten back was nothing compared to what it would have cost if I had needed to charge more. Talk to your friend an make sure it is clear if she wants to claim it you will not sit for her or it will cost alot more.

 

[kellia]

I did home daycare for 3 years, just went back to "work". In Michigan, you have to be licensed to do home daycare, in other states you do not. It isn't that hard to get licensed, though you will have some expeses like furnace checks, cpr classes, etc.

However, as far as taxes go, you will be able to write off all of your expenses and not have to pay any with only 1 child. For example, you can claim your mortgage, utilities, food they eat, etc, depending on what % of the month you are "open". I didn't have very many kids, and I would even out just from those basic expenses before I got to claiming other daycare expenses.

 

[brymolmom]

Heres my question: Im just about to start doing daycare (1 child) in my home for a family friend. When she and I set this up, I reminded her that since I am not licensed she cannot claim child care on her taxes, but she still opted to go with me rather then a center. Here is the issue, she said she has found out that she can get the deduction if I claim the income.....and thats where my question comes in.....how do I do that, and how involved will it be? Any links or suggestions on where to go to find out more about this would be greatly appreciated. TIA

Just explain to her that the deduction she is getting on the REDUCED costs per week are going to way outway the deduction she would get on her taxes. I have used an unlicensed/unclaimed provider for 6 years and, believe me, she is the cheapest deal (and BEST provider) in town. Find out what some of the day care centers in your town charge per kid and show her the difference between that and what you plan on charging her. If she still is insistent at wanting to deduct, tell her to go to the day care center instead.

 

[fortheluvofpooh]

our local tax lady said if you make less than $3000.00 a yr then you don't need to claim it as income if it under the table. If it is on the books then you do. Like childcare in home paid cash, less than 3k you are good, bussing tables w/paystub less than 3k then you pay. HTH.

 

[hlane]

I am an unlicensed provider and all 4 of my families take the deduction. My DH files our taxes and I claim all the income. I provide all my parents w/my SS# so they can file but it's not required, they could just use my name and address. Trust me, if she takes the deduction and you dont claim it, you are going to have a huge mess on your hands.

 

[fortheluvofpooh]

Just explain to her that the deduction she is getting on the REDUCED costs per week are going to way outway the deduction she would get on her taxes. I have used an unlicensed/unclaimed provider for 6 years and, believe me, she is the cheapest deal (and BEST provider) in town. Find out what some of the day care centers in your town charge per kid and show her the difference between that and what you plan on charging her. If she still is insistent at wanting to deduct, tell her to go to the day care center instead.

I agree with this post too.

 

[kwhite1022]

I am an unlicensed provider and all 4 of my families take the deduction. My DH files our taxes and I claim all the income. I provide all my parents w/my SS# so they can file but it's not required, they could just use my name and address. Trust me, if she takes the deduction and you dont claim it, you are going to have a huge mess on your hands.

Either we will come to an agreement, or I will not be doing child care for her.

I should be under the $3000, so it sounds like Id be ok there, but still screwed if she claims me. What a mess, and soooo not worth my time. I was trying to help her out, as the sticker shock of daycare centers meant she would not make enough to cover her gas into work! Its beginning to seem its not worth the hassel, not to mention being tied down.

Thank you all for the information, its been very informative.

 

[hlane]

Over the last few years I've been doing this I've had a parent or two ask for to pay a reduced rate and not claim it on their taxes but I've never agreed as it made me nervous that regardless of what we agreed upon there was nothing from stopping them from doing so and I would never know until the IRS contacted me

 

[corie161]

As far as I know it doesn't matter if you are licensed or not. If you had a teen watching your kid you could claim that as a deduction. If I remember right though, I thought the SSN was required in order for us to take a deduction.

 

[hlane]

THIS IS ALL PER THE IRS WEBSITE................


Childcare providers. If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it.

Babysitting. If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you.


Information needed. To identify the care provider, you must give the provider's:
Name,

Address, and

Taxpayer identification number.


If the care provider is an individual, the taxpayer identification number is his or her social security number or individual taxpayer identification number. If the care provider is an organization, then it is the employer identification number (EIN).

You do not have to show the taxpayer identification number if the care provider is one of certain tax-exempt organizations (such as a church or school). In this case, enter “Tax-Exempt” in the space where the tax form calls for the number.

If you cannot provide all of the information or the information is incorrect, you must be able to show that you used due diligence (discussed later) in trying to furnish the necessary information.


Due diligence. If the care provider information you give is incorrect or incomplete, your credit may not be allowed. However, if you can show that you used due diligence in trying to supply the information, you can still claim the credit.

You can show due diligence by getting and keeping the provider's completed Form W-10 or one of the other sources of information listed earlier. Care providers can be penalized if they do not provide this information to you or if they provide incorrect information.

Provider refusal. If the provider refuses to give you the identifying information, you should report whatever information you have (such as the name and address) on the form you use to claim the credit. Enter “See Attached Statement” in the columns calling for the information you do not have. Then attach a statement explaining that you requested the information from the care provider, but the provider did not give you the information. Be sure to enter your name and social security number on this statement. The statement will show that you used due diligence in trying to furnish the necessary information.

 

[lovepurple]

In these situations, what is legal and what people do aren't always the same thing. The IRS doesn't care if you are licensed or not. They want their cut on any money you earn.

 

[Lisa06468]

However, as far as taxes go, you will be able to write off all of your expenses and not have to pay any with only 1 child. For example, you can claim your mortgage, utilities, food they eat, etc, depending on what % of the month you are "open". I didn't have very many kids, and I would even out just from those basic expenses before I got to claiming other daycare expenses.

I would look into this at the IRS site before claiming all of the above. Just because you babysit doesnt mean you can claim your mortgage, utilities, etc. As far as a "home business" goes - you can only claim that portion of your house that is used specifically for said home business. Food yes, if youre feeding them. House expenses get very tricky and raises red flags.

I would like to see people go back to the day when they had a great deal thru a trusted friend or family member watching their precious children, they pay the agreed on amount (almost always cheaper than an established daycare facility) and forget the "deductions". In the end its just not worth it and can put a strain on relationships. Youre doing her a favor by watching her child and she is doing you a favor by paying you to do so. Its a win-win situation for everyone. I'd say if she is that worried about her deductions she should go to a daycare facility.

 

[4Seasons]

I would also explain to her that the deduction she might get for what she pays you will likely be far less than what she is SAVING by not paying center rates. If you are giving her a $50/week break over center rates, and you watch the child say 50 weeks out of the year, she's getting a $2500/year savings, would she get more than that if she claimed the expense?

I would at the very least look into what the licensing regulations are for your state, just to see whether it would be worthwhile to pursue that avenue. Some states don't require licensing until you hit a certain # of children. Licensing really has nothing to do with whether you choose to claim the income or not, IRS could care less about licensing.

If you do claim this income on your tax return you'll at minimum have to file a Schedule C (self employment income) and Schedule SE (self employment tax). If you choose to write off expenses related to your home (mortgage interest, property tax, electric and utilities) you will have to refer to this IRS publication:
http://www.irs.gov/pub/irs-pdf/p587.pdf
This deduction is calculated on a "time-space" percentage. You will also have to add a form 8829 if you choose to do this.

At the end of the tax year, you would need to provide her with a Form W10 with your SSN:
http://www.irs.gov/pub/irs-pdf/fw10.pdf

One thing I hope you've thought about and would REALLY like to stress is that whether you are licensed, unlicensed, paid under the table or "above board", please make sure you have a written and signed contract spelling out ALL the details of this childcare arrangement (hours, pay, scheduled days off, etc.). There are far too many times I've seen and heard of people being taken advantage of in "informal" childcare arrangements.