PLANNING TO PAY YOUR TAXES
Constance A. Bettis
District Specialist, Communities, Families and Youth
University of Massachusetts Cooperative Extension
Copyright/Access Information
- which federal tax forms you must fill out.
- where you can get tax preparation help.
- how to budget money to pay your taxes.
As a family day care provider, you are self-employed. You do not have an employer taking taxes and social security out of your pay for you. The Internal Revenue Service (IRS) requires you to fill out income tax forms and pay taxes and social security on your net profit.
Net Profit is what is left when you subtract your day care expenses from your day care income. For example, if you got paid $12,000 by the parents and you spent $3,000 to run your day care, you will have to pay taxes on $9,000 (your net profit). The Family Day Care Income and Expenses fact sheet [in this series] has a list of tax-deductible expenses.
You may also have to pay state and local taxes on your net income. Call your state Department of Revenue for more information.
Income tax preparation will be easier if you keep track of your income and expenses each month. Below is a list of the federal tax forms you must fill out.
This form lets you deduct part of the cost of some items you use in your day care program. These things must last more than one year and cost more than $100.00 each.
On this form you list how much money you earned from your business, what your expenses were, and the amount you pay taxes on.
If you figure that you will owe the IRS more than $500 in taxes, you must pay your taxes every three months (quarterly). Have your tax preparer help you figure this out.
Self-employment tax will give you social security benefits when you retire. You must pay into this fund if your net profit is more than $400.00 a year. For example, in 1991 you would have had to pay 15.3% tax on your profit, but only 92.35% of your net profit would have been taxed.
Parents who claim the Child Care Tax Credit will ask you to fill out this form. It lists your name, address, and social security or tax identification number.
This form ties your personal income and business income and your deductions together. It will show the amount of taxes you owe or the amount of your refund. If you are married, you may file a joint return.
Figuring out taxes can be hard. You can get help from a tax preparer who knows about family day care. Your support agency or other day care providers can help you find one. The more information you give to your tax preparer, the more he or she can help you. When you meet with the tax preparer, he or she will need the following information from you.
Programs on record keeping and tax preparation are given by community colleges, small business development centers, and the Small Business Administration. Their numbers are in your phone book.
The IRS provides instruction booklets and audio tapes. When you call for information, say that you are a self-employed family day care provider. Look in your phone book for the toll-free IRS telephone number.
As a self-employed day care provider, you don't have taxes withheld from your pay. You will probably have to pay social security and income tax on your net profit. It is a good idea to put aside 25% of your gross income to pay these taxes.
Call your local business assistance agencies to see if they have free tax-preparation classes or booklets. Try calling your local small business development center, small business center, and community college.
There are companies that prepare low cost tax preparation guides every year for family day care providers. The guides give up-to-date information on how to figure your taxes. Ordering information is given below.
*Family Day Care Tax Workbook* Toys 'n Things Press 450 North Syndicate, Suite 5, St. Paul, MN 55104 1-800-423-8309
*Dollars & Cents: Tax Resource for Family Day Care* Wildwood Resources 6143 South Willow Dr., Englewood, CO 80111 1-303-850--0105
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