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When to pay your parents to watch your kids

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in Small Business Tax,Small Business Tax Deduction Strategies

If you help an elderly parent or in-law make ends meet, you probably still won’t be able to claim a dependency exemption for the relative because of the “gross income limit.” But there may be a way to get around the tax rules if the relative watches your young children while you and your spouse work.

Strategy: Designate your support as payment for child care. In other words, instead of paying the bills, give the money directly to the parent or in-law.

Will this ensure that you qualify for a dependency exemption? Not at all. But you may be entitled to a dependent care tax credit for the payments for watching your kids.

Here’s the whole story: To qualify for a dependency exemption for a relative who is not your child, you have to provide more than half of the relative’s support during the year, and he or she can’t have gross taxable income exceeding the personal exemption amount. The personal exemption amount for 2015 is $4,00...(register to read more)

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