Income Requirements

• If you earned at least $400 during the calendar year from baby sitting, you must file a tax return and pay self-employment taxes on your earnings. Because you are getting paid by cash or check it can be tempting to not report the earnings on your return so that you will not have to pay the taxes. It is illegal, however, not to report all earnings more than $400. Parents can claim the amount they pay for child care on their taxes. If they report paying you to watch their children and you do not report receiving that money, the IRS will likely investigate. Honesty is always the best policy, especially with taxes.
  
  

Allowable Deductions

• Money you spend on items that improve your baby sitting business are allowable deductions that lower the amount of taxes you will owe on your baby sitting income. You can not take a deduction for driving to a child's home to baby sit but if you drive the child to activities, lessons or school once you are on the job, you can take a deduction for the gas if you keep track of the mileage. Items purchased specifically for your business such as toys and games that you only use with the children you baby sit, a computer program to track earnings, a dedicated cell phone line for parents to reach you on are all allowable expenses. If you dedicate a room in your home solely to baby sitting, you can take a percentage of all your utility bills and mortgage expense as a business deduction as well.
  
  

Record Keeping

• As a baby sitter, you need to keep clear records of what you are paid and what you spend on the job. You can keep a basic notebook, create a spreadsheet or purchase software that can help keep track of everything. Regardless of which way you choose to keep track, what really matters is that you know exactly how much you earned and how much of those earnings you spent on baby sitting related expenses. When tax time rolls around, you do not want to be guessing.
  
  

Tax Forms And Issues

• When you file your taxes for your baby sitting income, you will use two forms created specifically for self-employment income. The first is Schedule C, which is where you report all of your income and expenses and calculate your babysitting profit. The second is Schedule SE, which is the form used to calculate how much you owe in self-employment taxes. Self-employed individuals who will owe more than $1,000 in taxes are expected to pay their taxes four times per year since they are not having taxes withheld from a paycheck. If you baby sit more than just occasionally, you should speak with an accountant early in the year to get advice on paying quarterly taxes and to come up with an estimate of how much you will owe.