Business Accounting & Tax Preparation 1585 W Wetmore Road, Tucson, AZ 85705 Mailing Address: P O Box 35743, Tucson, AZ 85740 Phone: 520-292-9773 Fax: 520-292-9878
Accounting By Design, Inc.

Child and Dependent Care Expenses

Child and dependent care is a major expense for working parents. Similarly, you may also incur costs for other dependents, such as aging parents. Fortunately the Tax Code provides relief. Obtain a W-10 for your child care provider to complete. This form gives you information that you will need at tax time. Limits - In 2023 a child or dependent care credit can be based on up to $3,000. of expenses if you spend that much on care for one dependent. That dependent can be a child under age 13 or a disabled relative. If you're paying for more than one dependent, the credit can be based on up to $6,000. of expenses in total. To get this credit, you must pay for the care of the child that enables your and your spouse (if you have a spouse) to work, to look for work or to go to school full time). Plus the person you are paying to care for your dependent cannot be a dependent (in other words you cannot pay one of your children to care for another child and claim this as dependent care) or your spouse. Work is defined by the IRS can be for others or in your own business or partnership. It can be either full time or part time. It also includes looking for work. However, if you do not find a job and have no earned income for the year, you cannot take this credit. Eligible expenses - home care or day care costs, nursery school, pre-school or similare programs below the level of kindergarten, kindergarten are now eligible. In addition, the expenses of sending a child to day camp can qualify for this credit. Money spent on overnight camp, boarding schools, summer school and tutoring programs cannot be counted. You can claim from 20% to 35% of your care expenses up to a maximum of $3,000 for one person or $6,000 for two or more) Frequently asked questions and answers: "My spouse and I both work and are eligible for Child and Dependent Care Credit. May I include my 5 year old son's parochial school kindergarten tuition cost as a qualified expense?" The answer is No. The expenses for kindergarten do not qualify because it is primarily educational in nature. However you can count the part of the expenses of sending your child to school that is for your child's care IF it can be separated from the expenses of education. For example you may count the cost of an after school care program. "My babysitter refuses to provide me with her social security number. Can I still claim what I paid for child care on my taxes while I worked" Answer is Yes. Assuming that you meet the criteria for this credit, but are missing the required ID number of the provider, you can still claim the credit by demonstrating "due diligence" in attempting to secure the needed information. When the care provider refuses to give the identifying information, the taxpayer can still claim this credit and is instructed to provide whatever information is available about the provider. The form should indicate in the boxes where information cannot be obtained "see attached" and attach a statement that the care provider refused to provide you with the necessary information. "Can elderly day care payments qualify for the Child and Dependent Care Credit?" Elderly day care may qualify if the person receiving receiving the elderly day care is either your spouse who is physically or mentally unable to care for themselves or your dependent who is not physically able to care for themselves and the person must have the same principal place of abode as you. All other criteria for claiming the credit must be met as well.

Dependent Care Benefits

Employees may elect to exclude up to $5,000 per household (or $2,500 is Married Filing Separately) from gross income under an employer dependent-care benefit plan. Be careful that $5,000 is per household not per taxpayer. They are not included in your wages but are reported on your W-2 in Box 10. Be careful on choosing the amount you want to have excluded under the DCB's. If you elect $5,000 and only have $3,000 of child care then $2,000 will be added back to your income and be subject to tax. Plan well on this one.

Medical Expenses

Medical expenses in excess 7.5% of AGI are deductible as itemized deductions. The IRS says no to over the counter drugs with the exception of insulin. This is true even for drugs that a doctor instructs you to take. If it is over the counter do not include in your drug costs. You can only claim medical expenses PAID during the year and you cannot claim any medical expenses you were reimbursed for.