BENEFITS

Child Care Tax Credit

Entrepreneurs are busy people. Managing day to day operations and business development in addition to spending time with your family can be challenging. Luckily the IRS is there to help ease this burden through the Child and Dependent Care Credit, which allows you to deduct certain child care expenses. If you made a payment to someone to take care of your qualifying dependent you may be eligible for this credit on your individual federal Form 1040. In 2018, the tax credit for child in your household 17 and younger at the end of the tax year is $2,000. The tax credit for dependents older than 17 is $500. This means your tax liability is reduced by the total amount of your tax credit, which is more valuable than a tax deduction.

AUTHOR / SPEAKER

Annabel Kurt is a motivational speaker who travels across the country giving speeches. She and her husband have a newborn baby girl. After two months of cancelling all of her speaking engagements so Annabel could be with her daughter, she was ready to get back to work. Because her husband also works, they decided to send their little girl to a daycare a few minutes away from their house. Annabel and her husband will be eligible to take the Child and Dependent Care Credit on their 1040 when they prepare their taxes.

UBER DRIVER / RIDESHARE

Pawan Phinash is a driver for lyft who works hard day and night giving rides. When Pawan isn't Lyfting, he cares for his 78 year old mother who has Alzheimers disease and has been living with him for the past year. Since Pawan still needs to earn a living, he hired a nurse to care for his mother while he is out giving rides. Pawan would be able to take the Child and Dependent Care Credit for the fees paid to the nurse since his mother could be considered a qualifying dependent.

AIRBNB HOST

James Carter, a full time Airbnb host is a stay at home dad with two five year old twins. During the summer James likes to go for long hikes and practice karate so he enrolls his twins at a day camp. Since James does not send his children to day camp so he can work, or look for work, these costs would not qualify as eligible care expenses and he would not be able to take the Child and Dependent Care Credit.

TASKER

Jose Amparo is an electrician who finds work independently and through Taskrabbit. Jose has two children who are 18 and 10 years old. When Jose is out tasking he pays his 18 year old son (who is a dependent) to take care of his youngest. Jose does not qualify for the Child and Dependent Care credit because his son is listed as a dependent on his return and thus is not considered to be a qualifying care provider.

REAL ESTATE AGENT

Katalina is a busy real estate agent who in addition to buying and selling homes for her clients also manages four properties. Since Katalina has a flexible schedule and can do most of her work from home her sibling frequently drops off his two children at Katalina's house to spend time with her. When she was preparing her tax return she asked her accountant if she could take the Child and Dependent Care Credit. Her accountant informed her that since the children were not her dependents she could not take the credit. Further, he explained to her that she would be the qualifying care provider, not the individual needing someone else to care for their child so they could work or look for work.

USING THE CHILD AND DEPENDENT CARE TAX CREDIT

  • In order to take the Child Care tax credit, any "qualified" children must be 17 or younger at the end of the tax year.
  • The dollar value of the credit will vary depending on how much money you make. In 2018, any taxpayers with AGI under $200,000 / $400,000 (single/married), can take the full amount of the tax care credit. If your AGI is above these amounts, the maximum credit is reduced $50 for every $1,000 your income is above the threshold.
  • The Child and Dependent Care Credit will directly reduce your tax liability dollar for dollar, whereas if this was a deduction it would only reduce your taxable income.
  • Refer to IRS guidance for additional information regarding this credit, there are a number of exceptions and additional details that go along with the information outlined above.

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