Tax Implications For Low Income

[TheGoodLife]

Question probably geared toward Tom- if I were to reduce my families to my one PT family and only made about $400 a month, what would be the tax implications? I know if you don't show profit after 3 years it's considered a "hobby" but what exactly does that change?

[TomCopeland]

Originally Posted by Mama2Bella

Question probably geared toward Tom- if I were to reduce my families to my one PT family and only made about $400 a month, what would be the tax implications? I know if you don't show profit after 3 years it's considered a "hobby" but what exactly does that change?

If you make less money, your taxes will be less and you will have less money in your pocket at the end of the year. You may not be able to claim all of your house deductions since they can't create or increase your profit. You can roll over these house deductions to the next year, but you may never be able to claim them.

If your Schedule C expenses (without counting your house expenses) consistently exceed your income, you could be showing a loss for many years. This may attract the attention of the IRS who may decide that you aren't trying to make a profit and they can reduce your expenses until you do show a profit.

I would not advise showing a loss more than twice every 5 years.

[TheGoodLife]

So would I just chose to not claim deductions until I have a profit? And how much profit would you suggest to be safe? (If I make $400 a month, that's only $4800 annually.)

[TomCopeland]

Originally Posted by Mama2Bella

So would I just chose to not claim deductions until I have a profit? And how much profit would you suggest to be safe? (If I make $400 a month, that's only $4800 annually.)

Yes, I'd show a profit of at least $100 a year.

[has_my_heart]

I am setting up my daycare at my parents house. I currently live here as well. I'm curious what the best approach is for writing off the part of the house that is used. Should I put my mom on the business license as a partner since she is investing money and time into it? Or should I pay rent (even though they are not asking for it) and write it off of that to then reimburse the homeowners? Does that make sense? Thanks!

[TomCopeland]

Originally Posted by has_my_heart

I am setting up my daycare at my parents house. I currently live here as well. I'm curious what the best approach is for writing off the part of the house that is used. Should I put my mom on the business license as a partner since she is investing money and time into it? Or should I pay rent (even though they are not asking for it) and write it off of that to then reimburse the homeowners? Does that make sense? Thanks!

You can't directly deduct any house expenses because you don't own the house. If you pay your parents rent, you could deduct the rent, but your parents would have to report the rent as income on Schedule E (where they could deduct some expenses). Don't set up a partnership - too complicated.