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Please help me understand childcare write offs
Posted by CHiPs25 on 1/20/15 at 9:46 pm00
My wife and I are going to have our first kid in about 4 weeks Starting in May we're going to send the little one to daycare, which is going to cost us $500/wk. It's important for you to know that our taxes up until this point have been very cut and dry. We're married (filing jointly) and rent so we've done our taxes on TurboTax in about 15 minutes. So my understanding of tax benefits is very....VERY limited. Based on the research that I've done, it looks like we will be eligible for a $3,000 tax break which to me doesn't seem like all that much. My assumption is that the $3k will come off our total income for 2015 which could potentially put us in a different tax bracket (more than likely not) so what is the true benefit of that $3k. Am I following this correctly?
Also, for those of you that have had children, are there other tax advantaged credits that I need to be aware of so I can prepare and start saving receipts for any future expenses?
Thanks in advance for any help you can provide. I'm starting to cry a little bit because i'm starting to realize how much money this is really going to cost us and how little money we're going to have left.
Time to maybe move out of Chicago and head back south.
Also, for those of you that have had children, are there other tax advantaged credits that I need to be aware of so I can prepare and start saving receipts for any future expenses?
Thanks in advance for any help you can provide. I'm starting to cry a little bit because i'm starting to realize how much money this is really going to cost us and how little money we're going to have left.
Time to maybe move out of Chicago and head back south.
quote:
Starting in May we're going to send the little one to daycare, which is going to cost us $500/wk.
Find a different daycare for one. You can hire a full time nanny in most places for that. Hopefully you meant month, not week. Good Lord if you didn't.
I think it will be a credit, which will reduce what you owe instead of coming off your income. It won't be refundable, though.
Say your Line 43 taxable income is $90,000 after exemptions, deductions, etc, your tax would be $14,129. The $3,000 credit would make your owed tax $11,129, rather than making your income $87,000 (and a tax of $13,469).
ETA: Just saw you were in Chicago, so the $500/week might be legit. Still, Good. Lord.
This post was edited on 1/20 at 10:00 pm
quote:
Hopefully you meant month, not week. Good Lord if you didn't.
I wish i mis-stated. This is standard for Chicago. Before the month even starts i'm out $4,700 with rent and daycare.
So my owed tax ($11,129 in your example) would be compared to my actual tax paid in the calendar year and then either I would owe money or receive money.
Is that how it works?
re: Please help me understand childcare write offsPosted by StringedInstruments on 1/20/15 at 10:23 pm to CHiPs25
I was just complaining about the $660 I pay per month for daycare. I can't imagine $2000.
re: Please help me understand childcare write offsPosted by CHiPs25 on 1/20/15 at 10:31 pm to StringedInstruments
It's definitely a shock. Anything less than $2k and i'm sending my kid into a puppy mill.
re: Please help me understand childcare write offsPosted by StringedInstruments on 1/21/15 at 7:40 am to yellowfin
quote:
If you can afford $500/week daycare you probably make to much to get credit for child care expense
That's what I was thinking too.
shite, he's out $4700 with just rent and daycare. That's about $56k a year spent without food, utilities, transportation, insurance, etc.
re: Please help me understand childcare write offsPosted by Chaplain on 1/21/15 at 8:14 am to StringedInstruments
Dang, I thought my $700 per month was rough. Good perspective for me now.
Not to hijack the thread, but our dayschool gave me a W9 to turn in with my taxes. Is that normal?
Not to hijack the thread, but our dayschool gave me a W9 to turn in with my taxes. Is that normal?
re: Please help me understand childcare write offsPosted by TigerintheNO on 1/21/15 at 8:41 am to CHiPs25
25K a year for child care for one kid, times have changed
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quote:
So my owed tax ($11,129 in your example) would be compared to my actual tax paid in the calendar year and then either I would owe money or receive money.
Yes, but its not refundable. If you owe 10,000 in tax, and you paid in 8,000, the 3,000 just reduces your owed to 0, it doesn't give you a 1000 refund.
Thanks for the perspective on daycare. Wow. I pay $600 a month and think its high. The good news is that when you get ready to send the little one to K-12 school, you can send them to the best school in Chicago (Latin) and pay about the same.
LINK
This post was edited on 1/21 at 9:06 am
re: Please help me understand childcare write offsPosted by StringedInstruments on 1/21/15 at 9:15 am to GeeOH
quote:
Uh, the easy answer to this question is to quit your job and open a daycare in Chicago.
Seriously, not knowing what your wife makes, you may want to crunch the numbers on this situation.
My wife and I have talked about the possibility of her quitting her teaching job to open a home daycare.
Our first daycare was a home daycare offered only to teachers. Kids were there at 7am and had to leave by 4pm. She kept the same holidays as public schools and got the summers off. Charged $600/kid and had 12 kids there at all times.
I wonder how much the overhead is. Has to be a lot.
re: Please help me understand childcare write offsPosted by Ace Midnight on 1/21/15 at 9:19 am to StringedInstruments
quote:
I was just complaining about the $660 I pay per month for daycare. I can't afford $2000.
FTFY
That would instantly become my #1 budget item and there is no way that could happen.
No wonder people either have no children or 12.
quote:
Yes, but its not refundable. If you owe 10,000 in tax, and you paid in 8,000, the 3,000 just reduces your owed to 0, it doesn't give you a 1000 refund.
Is this right? Is there such a thing as refundable/non-refundable credit? I understand a differentiation between stuff like the Earned Income Tax Credits where you literally make money off of it, but not getting it refunded? So I should short the IRS on withholding?
re: Please help me understand childcare write offsPosted by onelochevy on 1/21/15 at 9:48 am to CHiPs25
500/wk is crazy. We had our son in august and we priced day care around here and the one we liked was 170/wk. Thankfully my mom is able to watch my son while im offshore so we wound up not needing it at all.
re: Please help me understand childcare write offsPosted by LSUFanHouston on 1/21/15 at 10:16 am to CHiPs25
Just to make sure you understand (even thought this has been essentially said already) - for the credit, you can consider up to $3,000 of costs for the kid (which will take you just over a month... goodness). Then you apply a percentage to that amount. The percentage varies down from 35 percent to 20 percent based on income - most people use 20 percent. Whatever that calcs to is your credit - it reduces tax dollar for dollar. So likely you will have $3,000 x .20 = $600 tax credit. You now owe $600 less in taxes.
Also it needs to be said that you only get the credit as a married if both of you have earned income.
I would also see if either of your employers have a dependent care account plan. This is similar to a FSA, but you use it for childcare dollars. You can usually put up to $5,000 in the plan. This is pre-income tax. Just like an FSA, you either get a card to make payments to the child care, or, you pay with other dollars and get reimbursed from the account.
The benefit of a Dependent care account is that it reduces your taxable income, so the tax effect of this is at your marginal tax rate. If you are in the 25 percent tax rate bracket or higher, this may be a better deal... plus... you get to take a higher amount into account.
So... if you are at least $5,000 into the 25 percent bracket, and you put $5,000 into the plan, you would reduce your tax by $5,000 times .25 = $1,250.
Plus, a lower AGI may help you in other areas when qualifying for other deductions and credits.
Also it needs to be said that you only get the credit as a married if both of you have earned income.
I would also see if either of your employers have a dependent care account plan. This is similar to a FSA, but you use it for childcare dollars. You can usually put up to $5,000 in the plan. This is pre-income tax. Just like an FSA, you either get a card to make payments to the child care, or, you pay with other dollars and get reimbursed from the account.
The benefit of a Dependent care account is that it reduces your taxable income, so the tax effect of this is at your marginal tax rate. If you are in the 25 percent tax rate bracket or higher, this may be a better deal... plus... you get to take a higher amount into account.
So... if you are at least $5,000 into the 25 percent bracket, and you put $5,000 into the plan, you would reduce your tax by $5,000 times .25 = $1,250.
Plus, a lower AGI may help you in other areas when qualifying for other deductions and credits.
re: Please help me understand childcare write offsPosted by LSUFanHouston on 1/21/15 at 10:25 am to NukemVol
quote:
refundable/non-refundable credit?
A refundable credit just means the credit can take your tax liability below zero. Most tax credits are non-refundable - meaning they can take your tax liability down to zero, but any remaining credit is wasted. EITC and a portion of the American Opportunity Tax Credit are examples of two that are refundable.
Example - your tax is $600. You have $800 withheld. You have a nonrefundable tax credit of $1,000.
With a non-refundable credit, your tax is reduced to zero, and you get a refund of all $800 in tax withheld. The other $400 of credit is wasted.
Now say the $1,000 credit was refundable. The entire $600 liability would be eliminated, and the remaining $400 would be added to your refund, so you would get a $1,200 refund.
re: Please help me understand childcare write offsPosted by NukemVol on 1/21/15 at 10:31 am to LSUFanHouston
Thanks, that's what I expected.
re: Please help me understand childcare write offsPosted by CHiPs25 on 1/21/15 at 11:26 am to LSUFanHouston
Thanks
I'm not sure if either of our companies offers a dependent care plan but we're definitely going to find out.
quote:for the help. It makes sense, somewhat, but I can follow what you're throwing down.
LSUFanHouston
I'm not sure if either of our companies offers a dependent care plan but we're definitely going to find out.
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