day care one child

[ljwalters]

Grandmother cares for grandchild after school. Picks her up at school and keeps her for 3 hrs. The grandmother charged her daughter $50 per week for this to cover expenses. Then the daughter claims the child care credit.

I have a problem putting this in a Sch C, since it is really not for profit. The auto expense alone brings the profit down to $975 profit. Then there of course is food and the outings she took her on. (Bowling swimming etc.), not to mention the house expenses. If she takes the income on the other income line we can not take any of the expenses because she does not use a Sch A.

How would you handle this one, any suggestions

Linda

Edited September 21, 2011 by erc
Edited to increase font size

[MAMalody]

My eyes must be bad, however, I can't read your posting. The font is too small.

[taxit]

If the daughter is claiming the child care credit then it is earned income , sch C. If the daughter is reimbursing her mother for expenses it is not child care. They can't have it both ways.

[Jack from Ohio]

Grandmother cares for grandchild after school. Picks her up at school and keeps her for 3 hrs. The grandmother charged her daughter $50 per week for this to cover expenses. Then the daughter claims the child care credit.

I have a problem putting this in a Sch C, since it is really not for profit. The auto expense alone brings the profit down to $975 profit. Then there of course is food and the outings she took her on. (Bowling swimming etc.), not to mention the house expenses. If she takes the income on the other income line we can not take any of the expenses because she does not use a Sch A.

How would you handle this one, any suggestions

Linda

For Mike

[Pacun]

If it is not earned income, then it is hobby income. Report income and remember that going from home to pick up the child would be considered commuting miles.

[ljwalters]

It is not a true reimbursment, because the Grandmother set the $50 / week as an estimate of additional costs. (limited imcome)

For extra utilities, food gas for auto.

Daughter took the view that its was daycare expense and used it to claim the credit.

Since the ss# was used to notify IRS of income to provider, it seems that SCH C is required.

That is the question sch C or no sch C

And then there is the question of "for profit"

Linda

[windmill]

You might look at the impact on grandmother tax return. It may not have any impact except self employment taxes which the daughter could pay because she is getting a sweet deal. On a profit of $1000, the SE is only $150. Child care centers around my city have weekly fees of $150 and up.

I agree with walters, that sch c needs to be filed when the daughter claims child care credit. The income needs to be reported. And of course, self employment taxes paid.

Next year reduce the weekly fee or do it for free or add to number of kids cared for.

[jainen]

>>I agree with walters, that sch c needs to be filed when the daughter claims child care credit<<

I do not agree with this. The question is how to treat it on the payee's return. The payor can not determine that, and doesn't care. As long as she properly reports on her own return, she can claim the credit regardless of what the care provider does with it. In the same way, how the grandmother treats it does not depend on whether the payments qualify for a credit.

The two returns are separate. In fact, if the daughter is also a client it would probably be an ethics violation to tell the grandmother she has to use Schedule C because of the credit.

[ljwalters]

The daughter is NOT a client.

[schirallicpa]

A schedule C needs to be filed. If it is reimbursement of expense, then expense is listed to offset income. Remember - IRS says all income is subject to tax unless it is specifically excluded. Babysitting is not specifically excluded. Report it.