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July 2015 Tip of the Month

WHAT? YOU MISSED THIS TAX WRITE-OFF LAST YEAR?

Perhaps after reading this you will know why you may have gotten that call from Mark, Paul or one of the other professionals at Abo and Company to give us your kids' birthdays we requested of you in our tax return organizer.  The summer is in full swing but here's something to consider for when we start ragging on you in February for your tax info (take a look at our website for a copy of our 2014 tax return organizer)

Summer Day Camp Expenses May Qualify for a Nonrefundable Tax Credit

The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separate parent's expenses for before or after-school care of a child in kindergarten or a higher grade may be expenses for care.

Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation.  So, here are the five facts the IRS wants you to know about the tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the summer and throughout the rest of the year if you pay certain expenses so you (and your spouse if filing jointly) can work or even look for a job. 

1.The cost of day camp may count as an expense towards the child and dependent care credit. 

2.Expenses for overnight camps do not qualify. 

3.Whether your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit. Since it's a credit it offers dollar-for-dollar tax savings.

4.The credit can be up to 35 percent of your qualifying expenses, depending on your earned income.

5.You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit. 

A couple of "Abo" points to add to those five:

  • A divorced/separated noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separate parent's expenses for before or after-school care of a child in kindergarten or a higher grade may be expenses for care. 
  • As indicated above, the cost for your child to go to an overnight camp is not considered a work-related expense while the cost of sending him or her to a day camp may qualify.  This may be true even if the camp focuses on a particular activity like gymnastics, theatre, computers, sports, etc. 
  • Summer school and tutoring programs aren't for the care of a child and do not qualify. 
  • Expenses for before or after-school care of a child in kindergarten or a higher grade may be expenses for care.  Nursery school and kindergarten costs will qualify but only the child care portion if the costs of school are separate from the child care expenses. 
  • The credit can also be claimed when you pay for care of other dependents as they are deemed qualified by the IRS. To illustrate, if you pay someone to look after your spouse or a dependent of any age who is incapacitated due to mental or physical handicaps, you may be so eligible. 
  • In that regard, private home nurses, licensed dependent care centers will qualify.  To the extent household help services are necessary for the well-being and protection of the qualifying individual, such expenditures may also qualify. 
  • You must identify the name and taxpayer identification number of the care provider on your tax return. (Note that you might have some additional filing duties depending on who you hire and how you cover the costs. If you pay someone to come to your home to provide such care, you may be considered a household employer, required to pay employment taxes. 
  • We noted the final regulations spelled out a special rule for a spouse.  He or she will be deemed to have earned income for purposes of the credit if he or she is a full-time student. Interestingly, whether a spouse taking online courses is treated as a student depends on the type of organization offering the courses. If the online courses are from an organization that offers only online courses, the spouse is not treated as a student. On the other hand, if the organization has traditional classroom instruction in addition to online courses, taking online courses can qualify the spouse as a student for purposes of the special rule. 
  • Meals and lodging at a boarding school are not part of an eligible cost.

For more information you may want to check out IRS Publication 503, Child and Dependent Care Expenses - we did.