Can child care be claimed as a business expense?

amother

White

Sun, Jul 08 2018, 3:57 pm

Google keeps thinking I'm asking about the dependent care credit, but I'm not. I want to know if I can put it as an expense for my self-employed business INSTEAD of toward the child care credit.

I definitely needed that child care in order to do my self-employed work, and the child was younger than kindergarten.

I am trying to figure out if it can be a business expense because my income is *just* over the threshold for EIC, which is worth a LOT more to me than the child care credit. So instead of applying for a credit, I would love to have it as a DEDUCTION.

The internet doesn't seem to have an answer to this because they are so stuck on questions about the credit Rolling Eyes

leah233

Sun, Jul 08 2018, 4:34 pm

Day care expenses are usually not a business deduction if you are filing a schedule C.

Sorry.

If your income is just over the EIC limit you will get very little EIC even if you do bring your income down because EIC is given on a sliding scale. So this shouldn't make too much of a difference anyway.

amother

Ruby

Sun, Jul 08 2018, 7:23 pm

cnc wrote:

Is that legal, if the business is not a school?

If it is set up a corporation it can be legal if it's not a school. But it is highly unlikely it would be worthwhile for someone at the OPs income rate to set up a corporation and deal with corporate filing, payroll tax filings and fees

amother

Puce

Sun, Jul 08 2018, 7:28 pm

amother wrote:

It would just show up in her salary anyway.

amother

Puce

Sun, Jul 08 2018, 8:59 pm

amother wrote:

If you have a business and take a paycheck the business can directly pay your childcare as a benefit. At least that's what we do.

but why aren't you using an accountant

What people do - and it’s problematic, is business makes a donation to the school, and parents don’t pay tuition.

amother

Natural

Sun, Jul 08 2018, 10:56 pm

The short answer is no. It cannot be claimed as a business deduction.
The comments above on dependent care plans are valid for employees. OP is not an employee. She is a sole proprietor. She does not get a salary. She is simply taxed on the net profit of her sole proprietorship. So any conversation on what is taxable on her pay or not is not relevant.

Now, what you can do, is officially putting your husband on the books as your employee. You will pay him a salary, including all payroll taxes. You get a business deduction for those expenses. He will also pay his share of payroll taxes (around 7.5%). That is an extra cost to you both that is not deductible anywhere. You will offer him an employee benefit plan which includes childcare. You get a Sch C deduction for childcare expense as an employee benefit expense. It will be not taxable to him if under $5,000. You need to set up a specific plan with specific language in order for him to qualify for this tax-free to him, tax-deductible to you benefit.

His new wages will have no net affect to your taxable income, since while he's getting extra salary from your business, you get a commensurate deduction for payroll expenses (his payroll plus the business share of payroll tax).

Is it worth it? You will need to pay a CPA to set this up properly and your husband (which means you, of course, on your joint return) will need to pay his share of payroll taxes on his new wages, all to reduce your business income by -at most- $5,000. May or may not be worth it.

amother

Natural

Sun, Jul 08 2018, 10:57 pm

amother wrote:

What people do - and it’s problematic, is business makes a donation to the school, and parents don’t pay tuition.

There is no business deduction for charity on a sole proprietorship. There is a separate itemized deduction for charity, but she is looking to get a business deduction so as to lower her AGI in order to qualify for EIC. This "shtick" wouldn't even help her here.

amother

Puce

Sun, Jul 08 2018, 11:21 pm

amother wrote:

I know. It was a general comment - responding to the poster whose tuition is paid as a benefit from the business.