Tax return question regarding self employment (small earnings)?

Question

Well my wife started a home daycare at the begining of 2007. the business ran for three months and made about 3400$ and she stopped because she became pregnant. I was wondering do we still have to report this earning since its very little and if i do report what forms would i use. I usually file a 1040 since im the provider of the family and we file jointly.
Any insight would be helpful thank you!

Answer 1

The income goes on a schedule C and the net earnings are taxed on schedule SE as well. Your wife may be able to claim use of home as a business expense (assuming she was properly licensed).

Even $400 of earnings is enough to trigger a filing requirement. And you can bet the people who had her babysit will be reporting the income when they claim their child care credits.

If she has no expenses, the SE tax will be about 480 and you would add $3160 to the income for the year (you get an adjustment for 1/2 of the SE tax).

See IRS publication 587.

Answer 2

To expand on a point made by VB, the home office rules are more liberal for in-home day care centers.

In particular, the exclusive use test does not apply. If you use 50% of your home as a day care center for 50% of each day, you would be entitled to claim 25% of your home costs. In your case the deduction would have to be further reduced, as you were only open 3 months.

Answer 3

Yes, it should be reported but your expenses could also be claimed on a Schedule C along with your 1040. Your accountant will certainly help you with this

Answer 4

Yes, you must include this income.

You would use Schedule C and Schedule SE.

Schedule C's for day cares can be a little tricky. You may want to see a professional this year.

Answer 5

You need to change the form to a easyer than what your doing now or you may pay more this year and next.