If you are self-employed or own your own company, can your business itemize your entire daycare expenses?

Question

Just out of curiousity, if you have your own business -- can your business pay for your child's daycare? --- if so, can you itemize those expenses on your taxes for your business? -- and if you can do that, on your personal tax return, can you take advantage of the child tax credits of $3000 per kid?

Answer 1

If your employer pays your daycare expenses, except as part of a Section 125 cafeteria plan (and that's your money anyway), the money they pay on your behalf is considered a taxable fringe benefit to you. You must pay income tax on those amounts and they will show up in the gross wages secton of your Form W-2. The business gets to deduct the expense as part of the payroll expense just as if it was paid to you in your paycheck.

Answer 2

Large companies that offer child care pass the expenses through to the employees. The company will, however, go to the expense of setting up an FSA program (flexible spending arrangement), so that employees can have the costs taken out of their pay. A small company isn't going to set up the FSA and a self-employed person can't.

If you spent money on child care, you will fill out form 2441 (anyone who used an FSA to pay for child care will also fill out the form). The value of the credit will depend on the amount you spent (capped at $3000 per child), your earned income from wages and self-employment and your AGI. If the home business lost money, this will count against the other income.

Whether or not you have a child care credit will not prevent you from claiming the child tax credit or EIC.

Answer 3

No, your business can't pay for it and deduct it as an expense. You can, though, take the child care credit for the expenses if you meet all the rules to do so. Note that the CREDIT isn't $3000, that's the total amount of expenses eligible for the credit for one child. The actual credit is a percentage of that that depends on your income.

Answer 4

You can take the day care expense and dependent credit only on your personal return

Answer 5

Legally???? No.

Day care expenses neither qualify as "ordinary" or "necessary" business expenses.