Can we expense our daycare costs?

October 21, 2008 6:44 PM

Our daycare costs for this year will be over $10,000 for one child, and I'm wondering if my wife's company can pay for the some of the costs as a business expense.

I've done some looking around and can't find anything definitive. I did see one source that indicated that after the $5000 tax deduction for child/dependent care costs, her business could pay for daycare but it would be a taxable benefit to us - basically extra income. (which is fine)

My wife's two business partners have agreed in principle that they would support this (with some cap in yearly spending), but is it legit (as in, with the IRS)? And is it legit for it to be a benefit for the partners (who are indispensable) but not regular employees?

I'm not sure how the law might vary state to state. If it matters, we're in Colorado.

posted by anonymous to work & money (3 comments total)

I'm not sure about the IRS. However, if she has a flexible spending account (FSA) she should be able to put money in there tax-free, and then use that to pay for childcare.
posted by Ostara at 6:50 PM on October 21, 2008

This is a resource from the Iowa extension office, but it addresses the federal tax issues and is pretty readable. It76yt55555555-0yyAP, where pre-tax income is set aside to pay for childcare expenses8i976t
posted by katemonster at 7:07 PM on October 21, 2008 [1 favorite]

Sorry, my cat took over my keyboard and managed to post.
As I was saying before she so rudely interrupted me, DCAPs are where pre-tax income is set aside to pay for child care expenses. It cannot be limited to highly-compensated employees. Vouchers/reimbursement, however, appear to be able to be limited eligibility. It looks like you'll probably want to consult a tax expert, but this might give you a place to start.
posted by katemonster at 7:10 PM on October 21, 2008 [5 favorites]