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Why Clients with Kids Should Keep Paperwork

Dec 11th 2018
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Tax Court rules on child care credit use
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Tax Court rules on child care credit use

Child-care tax credits are available for working parents who hire someone to care for kids under 13.

Qualifying outlays include payments to nursery schools, day care centers and babysitters. But beyond kindergarten, the IRS allows a credit for tuition only if payments to a school are for child care rather than education.

For instance, the IRS concedes a credit for part of your expenses if you place your youngster in a boarding school. For credit purposes, acceptable expenses include room, board and supervisory care before and after the normal school day but not amounts spent on tuition, books and supplies.

Suppose, though, that a working mother could keep her son in a public institution but enrolls him in a boarding school because she believes he will receive a better education there. Are room and board expenses disqualified because holding onto a job isn’t the sole reason she placed her child in a private school?

Not according to the Tax Court. It sided with Goldie Brown, who transferred her son from a Philadelphia junior high to a boarding school. The boy had attended an institution so plagued with classroom dysfunction, gang fights and teacher strikes that Ms. Brown had been unable to work since she had to be constantly available to pick him up if things got out of hand.

So: If the IRS questions your care expenses because you placed your child in a boarding school, be prepared to show you qualify for the credit. Hang on to checks and other records that back up those payments, at least until the statute of limitations runs out for an IRS audit. Generally, that’s three years from the filing deadline, or April 15, 2022, in the case of a return for the year 2018.

Best Wishes to My Readers for a Happy New Year! As someone who keeps his creditors at bay only because he has a certain talent for demystification of the Internal Revenue Code, I would be remiss in the discharge of my obligations to you were I to fail to note that “year” includes, but is not limited to all calendar, fiscal and taxable years. Consistent with the Joycean murkiness of Code Section 441, “taxable year” includes regular and short taxable years as well as taxable years having 366 days. 

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