Do I file?

Question

I am a single mom of 2 who babysits as sole source of income. How do I file? I am paid in cash and have made approx. $7,000 for the year? I have done a rough draft online with HR Block and it says I get a refund due to the EIC. How is this possible and should I file and take the credit? I am just worried because I havent paid any taxes on the income

Answer 1

You'll be OK, since you won't owe. Your EIC will be larger than the self-employment tax you owe, and you won't owe income tax. The earned income credit is money given to low income, working people in addition to anything they've paid in for taxes.

You'll file a schedule C or C-EZ, showing your income and any related expenses. The bottom-line number from there will transfer to your 1040, and to a schedule SE to calculate your self-employment tax - that number will then go onto your 1040.

Good luck.

Answer 2

You're running a home-based daycare business. You must claim the income on Schedule C and pay any taxes due on it. You must also file Schedule SE and pay the Self Employment tax. You are subject to loosened rules for the Home Office deduction and do not need to meet the exclusive use rules. This will help reduce your SE tax bite.

The EITC will probably offset any SE tax and there isn't enough income to pay income taxes on. Yes, you should file and take the credit! It's money that is owed to you but you must file a return to get it. It's a refundable credit, meaning that you get the excess if it's greater than your tax liability.

Answer 3

And also, keep documents of the income!