You can either report the income and also report the expenses, or you can just 'net' them.

Personally, it makes much more sense to me to report both the income and expenses.  However, the last time I checked, the IRS Audit Guide suggested netting them.  But I still report both the income and expenses.

If this is a daycare "center" that is not in a person's home, I don't think they can use the Standard Meal Allowance.