Child Care Tax Credit and Sch. C loss

sometime in the recent past Wilson posted this:

I wrote here before calling the IRS, but I actually got through quickly, less than 5 minutes.

According to them, everything I entered would have allowed them to get the Child & Dependant Care Credit if the husband had had a positive earned income. But since he had a loss and no other income, the credit wasn't allowed. This also cheated them out of their state credit since it relies on the 1040 ln. 48.

He worked all year, spent money on his business, but because there was no net income for him, the credit was disallowed. His loss did affect the AGI more greatly than the credit would have, but I can't help but feel this law is somehow skewed.

If he had been disabled or a student, he would have had imputed income of $500 a month (because of 2 children). I think the law is intended to disallow the credit for stay-at-home moms and dads who hire nannys or put their kids in daycare (i.e. rich people). But if he's running a bona-fide business and happens to suffer a loss, the credit should be allowed -- but as you note, it is not.

One thing you could maybe try is to not take section 179 deductions, bonus depreciation, accelerated depreciation.