I often get questions about how to maximize childcare expenses tax deductions. Childcare costs can be a major expense, so it’s good news that many of these expenses may be tax deductible. However, there are specific rules to follow to ensure you get the maximum benefit. In this post, I’ll walk you through what qualifies, who can claim it, and how to avoid common pitfalls when maximizing your childcare expenses deduction.
Video Transcript: Are you maximizing your childcare expenses tax deduction?
Childcare expenses are another example of deductions that may be available that can add a fair bit to your tax return.
Often people are thinking of babysitting expenses, camps, daycare, but also think for some people a portion of private school fees or maybe the cost of a nanny.
There are various limits and rules that apply to the childcare expenses. A couple of the critical ones:
You’re only allowed to deduct 2/3 of the cost. There are various limits based on the age of the kids and whether or not there’s a disability.
One of the gotchas tends to be it has to be claimed by the spouse with the lower income, and they have to have what we call earned income. So if the lower-income spouse, for example, has all dividends, they’re not going to receive a childcare expense. In other words, that childcare expense for the year has been wasted.
Sometimes it still makes sense, but not usually.
So the real critical idea with childcare expenses is to make sure the childcare expenses are going to the taxpayer you’re expecting them to, and you’ve totaled up and have a good idea of what those expenses are, the income required to make the maximum deductions.
I’m George Dube, saving the world from tax, one bow tie at a time®.
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Remember – circumstances are unique! This information is summary in nature. Seek out advice from your tax advisor about your specific situation.
