As a general rule, the IRS considers all income earned to be taxable (unless it falls under some kind of exception). Businesses generally need to pay estimated taxes quarterly, so you and your accountant need to work out a plan for taking care of that...especially as you're paid in cash.
Your bigger problem, though, is that you may be considered to be running a day care business without a proper license. It would be worth your time to speak to a local business attorney to ensure that you're not running afoul of any state laws or regulations.
Nina L. Kaufman is an award-winning business attorney, author and speaker. For more than 15 years, she has successfully navigated thousands of small businesses through the legal hurdles they face in starting and running their companies. Under her
AskTheBusinessLawyer.com brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and
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