"So where does your money come from?"

September 19, 2011 9:14 AM

How do income taxes work when my income is not by W2s or invoices? (home day-care; house cleaning)

I'm thinking of proving home day care for 2 children, which is the maximum number of non-related children one may care for a fee, without getting a license (though I might get a license down the road). I'm also considering doing house cleaning / snow shoveling / lawn mowing. I'd do this through fliers and word of mouth, Craigslist, and such.

This would amount to ALL my income. I don't want to set-up a business for this. Do I have to?

How would I go about filing federal and state income taxes when all my income is given in cash? Or would I need to give invoices?

Feel free to give me book or website suggestions about this sort of life.
And yes, I know about the IRS website ;-)

I live in Maine, by the way. Thanks in advance!

posted by midnightmoonlight to Law & Government (9 answers total)

I think you might do your taxes like any freelancer. You'd pay quarterly and it doesn't matter if you have invoices, you have income. It's worth the time to talk to an accountant about setting up your quarterly payments. Mine save me money and a lot of headache in about 30 minutes. Only an accountant in your state can give the best advice.
posted by amanda at 9:18 AM on September 19, 2011

It's really hard to nail down all the particulars.. The IRS helps, sort of, for self-employed folks.

If you're watching children, will any of the parents be paying you via their dependent care FSA ? Or just cash ? Will they want to deduct what they pay for for childcare costs ?
posted by k5.user at 9:26 AM on September 19, 2011

You do have a business, whether you like it or not. One of the Nolo Press books on starting a small business may be helpful. Your town or country may also have free resources to help small businesses.
posted by COD at 9:40 AM on September 19, 2011 [1 favorite]

You just take checks or whatever made out to you personally and fill out a Schedule C. It has entries for your income and all your expenses. The net gain or loss you have after filling out Schedule C is an entry on your personal 1040. You don't have to do anything else.

However, you will need to create a Schedule C for each business of yours unless you decide to do them all under one name. In that case, you will need to get a DBA license from your county and accept checks etc. in the name of the DBA. If you do that, all of your business income can go on one Schedule C and you will just need te decide what you want to describe your business primarily as, since the IRS doesn't really let you choose multiple categories.
posted by michaelh at 9:50 AM on September 19, 2011 [1 favorite]

And yes, if you are going to make any serious income you'll need to pay quarterly taxes for your 1040 since you're not witholding. The IRS has forms to help you figure this out and even sends you something in the mail if they calculate you likely will need to do this. Probably there will be a state quartely, too.
posted by michaelh at 9:51 AM on September 19, 2011

Doing a Schedule C isn't that hard. The reason that invoices exist is not strictly tax-related, but to help the business owner and the bill-payer rememeber what is owed and what's been paid. If you were to be audited, the IRS would want to see records of your income and expenses - presumably you have some excellent plan for good recordkeeping that would make it fairly painless to show, 5 years down the road, where your money came from and went to last year. Invoices and Quickbooks and all that accounting stuff are just tools to make it easier to document this stuff, also handy if there's a client who doesn't pay you when they say they will, you have an official looking piece of paper that says "hey look how much money you owe me!"
posted by aimedwander at 10:14 AM on September 19, 2011 [2 favorites]

You said "I don't want to set-up a business for this." In case it's not clear from the above, the IRS requirements for being a business and the local requirements are different.

There are "no IRS licensing requirements for sole proprietorships." If you are providing services for money and are not an employee, from the perspective of the IRS, you are a business.

But whether you have to register your business, be inspected, pay fees, etc., depends on local and state rules. It sounds like you have checked enough to know that you don't have to get a daycare license in your locality to care for two children, but that doesn't mean you don't have to get anything. This Small Business Administration tool might help you find out what (if anything) you would need to do.
posted by Mr.Know-it-some at 11:24 AM on September 19, 2011

depending on your locality, you may have to get a business license and pay city/county/locality taxes. if you're earning money without one and they find out about it (from state or feds) you'll be in a world of hurt.

frankly, as a sole propietor, i can't imagine doing anything without invoices/bills and proof of where your income is coming from.
posted by misanthropicsarah at 1:02 PM on September 19, 2011

Response by poster: Geez, I forgot that I asked this question.

Thanks for your help, now I know how to start planning for this.
posted by midnightmoonlight at 9:13 PM on January 6, 2012