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Is it better, financially, to claim income from babysitting on taxes?
I babysit my nephew and am wondering if it would be more beneficial to my sister and I if I claimed the income from babysitting so as we can both use the tax deductions. What is the better way to go financially? I only watched him for 7 months last year and am going to watch both nephews (new baby) for about 7 months at a rate of $600/month. Will I get good tax deductions to make claiming the income worthwile?5 years ago - 4 answers
Yes and no.
Your sister will be able to claim the money she pays you as child care expenses and get the tax credit on her return.
Depending on how you file the income on your tax return will get you additional taxes to pay.
The bright side is that if you do it right.you can claim the income,pay the taxes and boost your social security earnings that will add to you retirement.
You may need to set up a babysitting business to do so.
Then you can claim "business"expenses.
Other wise,your sister can not claim the child care and just pay you "under the table".
You should consult a business/financial/tax adviser for professional advice.
$4200 (7 times $600) is a small enough amount that you would probably not owe income tax if you had no other income.
You might receive the earned income credit.
Your sister might qualify for a child care tax credit.
Depending on whether the babysitting was in her home or your home, your sister might owe household employment taxes or you might owe self-employment taxes.
This isn't really optional, and i don't know why the people below are suggesting this or that 'might' happen.
The fact is, you are required by law to report all income. You're unlikely to pay taxes if that's all your income, but you don't get the option, you are supposed to report it and file a proper return.
Quizzard is correct: you must report all income.
This is ridiculous, but it is the law. Change the law and encourage your senator and congressman to support HR 25 / S 296, the Fair Tax. Learn about it fairtax.org, and join us at fairtaxnation. The tax system we currently have is literally destroying the U.S. economically and doesn't afford us the means with which to support the federal government, or ourselves, for that matter. You will see that the Fair Tax plan actually permits millions of jobs to come back to the U.S., trillions of U.S. dollars in offshore counts to come back, broaden the tax base, finances the federal government, and allow you to keep any and all income without penalty of withholding taxes.
Call your congressman, your senator, and the House Ways and Means Committee, where this vital bill currently sits. This matter is urgent and vital to our economy.