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Anne
Anne, Master Tax Preparer
Category: Tax
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Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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I am self employed and provide child care from my home. I made

Resolved Question:

I am self employed and provide child care from my home. I made 4800.00 in 2009. I have one minor child living at home. I am single and file head of household. My question is after the goverment takes out their share, will I still qualify for the child tax credit and recieve some kind of return?
Submitted: 4 years ago.
Category: Tax
Expert:  Anne replied 4 years ago.
HiCustomerbr />
Can you please tell me if the $4800 you mentioned was your gross income for the whole year AFTER deducting your allowable expenses?
Customer: replied 4 years ago.

Hi anne,

 

$4800 is gross for the whole year without deducting anything. This is my first time filing self employed so I know nothing about allowable expences.

Expert:  Anne replied 4 years ago.
Ok just a couple of more questions, and then I'll be able to answer your question.

Do you have any other sources of income, whehter taxable or not, such as wages from a job you held part of the year, child suport, etc.

How much is your housing payment/month (whether rent, or if you're paying on a mortgage)

Customer: replied 4 years ago.
My daughter receives SS payments with myself as beneficiary from the death of her father. We receive $748.00 a month. So in total we recieved $8976.00. That's the only other form of income we received. I did not work anywhere else. I pay $890.00 a month in rent.
Expert:  Anne replied 4 years ago.
Thank you Customerfor that additional information.

First let me express my sympathy on your loss. Losing a loved one is never easy. I know.

I'm assumng that the parent died more than 2 years ago, so filing using the married filing joint status, or the qualifying widow status is no longer an option. (Based on your statement that you normally file as head of household) If this is not correct, please let me know.

I asked those follow up questions because there are some real issues with the IRS and self employment income, head of household filing status, and the Earned Income Tax Credit (which you will qualify for) Let me tell you what those issues are, and what I would do/ask if you were sitting at my desk wanting to have your taxes prepared.

You stated you were self employed as a day care provider, and that this was your first year, so you weren't aware of what types of expenses would be allowable. There is a wide variety of allowable expenses for day care providers, but probably the biggest one I see on a regular basis is for food for the child.

Although I seriously doubt this is true in your case, IRS takes an extremely dim view of folks who file as self employed with no expenses, mainly because of the Earned Income Tax Credit, which you should qualify for this year. (Based on your low income and the fact that you have a child that lived with you the whole year) So,before you actually sit down on your own or with a tax advisor to prepare your taxes, you need to see what receipts you can find for things like extra food purchased for the child, equipment, such as a baby swing, special toys that you would not have purchased for your own child, etc.

Your biggest issue however is that you pay more in rent than what income you state you have. Your rent at $890/month x 12 months is $10680. You stated your total income from all sources was $8976. This is an important fact to bring up since IRS may deny any refund based on the fact that you paid out more than what you brought in, so you will want to address this issue when you file your taxes. (Its possible for this scenario of paying out more than what you brought in if you were living off your savings in the bank, life insurance proceeds, or a prior large tax refund, for example) This is also important when determining your filing status for the year and whether or not you may claim your child as a dependent. I will address those issues separately.

One of the rules for claiming your child as a dependent on your tax return and being able to use the "head of household" filing status is that you paid more than half the cost of maintaining the home for yourself and a dependent child.

In order to be your dependent, one of the qualifications is that the child not provide more than half of their own support. If Social Security benefits that are paid to a child that is used for that child's support (if the benefits are used to help pay the rent, food, clothing for the child, etc) then that counts as support provided by the child (I know...not fair since these are survivor benefits, but that is what the IRS regs state)

Social security benefits.

This means that this year, you may find that you can not claim your child as a dependent and get the child tax credit. Since you income is so low, using the single filing status instead of the head of household filing status will not create an additional tax burden for you. You may still claim the earned income tax credit since the child lived with you. However, if the child provides more than half of their own support, and you are unable to claim them as a dependent, then you will be unable to claim the child tax credit for that child for that year. See below:

Child Tax Credit


Not filing a tax return is not an option for you, since the filing requirement for self employe individuals is $400 of gross self employment income and you have exceeded that $ amount.

As for your original questions, will you qualify for any type of return, the answer is yes, IF you can adress the issues I mentioned at that time you file your tax return.
You will be eligible for the Earned income credit based on your net self employment earnings. Please see below:

Earned Income Tax Credit (EITC) Overview

As a self employed person, you will also be responsible for paying your own social security tax. You do this by filing 2009 Form 1040 (Schedule SE) Self-Employment Tax on your NET earnings from your self employment income.

I know this is a long answer and is alot to take in, but there was alot more to your situation than just meets the eye. Just giving you a simple yes or no answer, with all of these variables, would not have helped you in the long run, since it could have left you wide open to be blind sided later on either at the tax preparer's desk, or in the form of an audit letter from the IRS.

Please feel free to come back with any follow up questions you may have.



Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1888
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Anne and other Tax Specialists are ready to help you
Customer: replied 4 years ago.
Thank you Anne!

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Anne
Anne
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1888 Satisfied Customers
Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses