Do you need someone to watch your young kids while you and your spouse work? There are usually several options for double-income couples to consider.
Strategy: Don’t forget to factor in the dependent care credit (commonly referred to as the “child care credit”). This tax break is available for the costs of caring for children under age 13 while you’re gainfully employed. It can defray your out-of-pocket child care expenses.
What’s more, the credit isn’t limited to expenses paid to day care centers or baby sitters. For example, if you hire a housekeeper who performs other domestic services, the entire salary may qualify for the credit.
How much is the child care credit? The maximum credit equals 35% of the first $3,000 of qualified expenses for one child, or the first $6,000 of qualified expenses for two or more children. Qualified expenses cannot exceed your earned income (if single) or the earned income of the lower-earning spouse.
However, the credit percentage is gradually reduced, based on your adjusted gross income (AGI), until it reaches the 20% level for taxpayers with an AGI above $43,000. This means that most folks are limited to a maximum credit of $600 (20% of $3,000) for one child or $1,200 credit (20% of $6,000) for two or more.
The IRS says that costs for household services qualify for the credit if they are incurred at least partially for the care of the children. This includes the services of a housekeeper, maid or cook, but the amounts paid to a chauffeur or a gardener do not qualify.
If part of the expense is work-related and part is not, you must divide the expense. Only the portion that is work-related qualifies for the credit. However, you don’t have to divide the expense if only a small part is attributable to other purposes.
For example, suppose you hire a housekeeper to care for your two children while you work. The housekeeper spends most of the time on normal domestic activities and also spends 30 minutes a day driving you to and from work. Because the nonwork-related portion is minimal, the entire cost of the housekeeper is eligible for the credit.
Like what you've read? ...Republish it and share great business tips!
Attention: Readers, Publishers, Editors, Bloggers, Media, Webmasters and more...
We believe great content should be read and passed around. After all, knowledge IS power. And good business can become great with the right information at their fingertips. If you'd like to share any of the insightful articles on BusinessManagementDaily.com, you may republish or syndicate it without charge.
The only thing we ask is that you keep the article exactly as it was written and formatted. You also need to include an attribution statement and link to the article.
" This information is proudly provided by Business Management Daily.com: http://www.businessmanagementdaily.com/32979/get-a-tidy-tax-credit-for-housekeeper "