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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.
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