Discussion:Daycare as a business expense
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| Revision as of 23:14, 6 September 2009 Nanc98 (Talk | contribs) (Hi Philiplacucpa) ← Previous diff |
Revision as of 23:19, 6 September 2009 Riley2 (Talk | contribs) (IRC Sec. 129(d)() Next diff → |
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Revision as of 23:19, 6 September 2009
Discussion Forum Index --> Basic Tax Questions --> Daycare as a business expense
Discussion Forum Index --> Tax Questions --> Daycare as a business expense
| 5 September 2009 | |
| I have a client (sole proprietor) that insists on deducting daycare as a business expense. His previous accountant let him. On reviewing the US Master tax guide sec 941 F it looks like payments to a daycare are deductible if 1) daycare provides employee with a place to send his or her child while at work 2) reduces absenteeism, increase productivity, and reduce company training costs 3) reduce turnover.
But it has been denied for a S Corporation where only the sole shareholder benefited. So does this mean if he is the sole employee with Children he can take the deduction? Thank you for your thoughts. Nance | |
Actionbsns (talk|edits) said: | 5 September 2009 |
| If you think about that, you'd have to come to the conclusion that day care for the sole proprietor doesn't work on the Schedule C. Bottom line on the Sched C is what determines how much is paid for SE tax. There are other expenses disallowed to a sole proprietor (owner's health insurance, owner's payroll, owner's FICA/MC, SEP) and part of the reason is the SE tax. I think the same philosophy applies here, as well as the same philosophy behind the sole shareholder of an S Corp. | |
Nbrcruncher (talk|edits) said: | 6 September 2009 |
| See Pub 15-B, Page 8, for Dependent Care Assistance. | |
| 6 September 2009 | |
| Sole proprietors can participate in Sec. 129 dependent care assistance programs since self-employed individuals are treated as “employees” under Sec. 129. However, if the sole proprietor is the only participant, then the benefit will not be deductible on Schedule C. | |
| 6 September 2009 | |
| Does this mean if my client is a sole proprietor and only employee he can participate in the Sec. 129 plan for dependent care or is he automatically phased out because he is owns more than 5% of the company and is receiving more than 25% of the amount paid for dependent care assistance for the company? | |
Philiplaucpa (talk|edits) said: | 6 September 2009 |
| Hi All:
There is two parts for this question. 1. Can the taxpayer exclude the child dependent care payment from the taxable income? The taxpayer should qualify for child dependent care payment from taxable income, as you could see on form 2441. 2. Can the sole proprietorship deduct the payment on Sch. C? Please see http://www.sanderscpa.com/new/benefits.htm . Actually I have never done it before, but according to this CPA, you may take the deduction on Sch. C. However, I don't believe you can take the deduction twice as it is obvious that there will be a double deduction. | |
| 6 September 2009 | |
| Nanc98, yes, your analysis is correct. No deduction is allowed for the owner since he owns more than 5% of the business. | |
Philiplaucpa (talk|edits) said: | 6 September 2009 |
| Hi Riley and Nanc98:
Please look at Publication 334. The daycare center expense is allowed for sole proprietor. I agree with you both that child care credit should not be on Sch. C. However, the taxpayer can take the child care credit. I think the 5% rule doesn't apply at this situation. Riley, could you give a support for your point. One thing that I am certain is that you can't take double deduction. | |
| 6 September 2009 | |
| Hi Philiplacucpa;
I got my information from Pub. 15-B and then Sec. 129 of the Internal Revenue Code. It looks like a highly compensated individual is anyone who owns more than 5% of the company. And Sec. 129 limits the 5% owner's benefit to 25% of the total benefit. Unfortunately my client would be receiving 100% of the benefit. I do agree he can take the qualifed child care credit, but I think he's going to be phased out of this one. Nance | |
