"creative" suggestions for making child care a business expense

I have a client who is a photographer (mainly weddings and special events). She has a 2-yr old son who needs care both while she is shooting and while she is editing. She estimates that she needs 1200 to 1400 hours of child care this year alone. Are there any legitimate ways she can make this a business deduction? I'm thinking -- make the babysitter an employee? The photographer has a studio separate from her home, and in the studio she has one extra, totally unused room that could be converted into a child-care space. If she actually employed the babysitter, and provided the major area of care within her studio (even though the sitter could take the kids to activities and maybe even to her own home on "outings"), would that qualify for a legitimate business deduction? If it could be structured as a legitmate business expense with the baby-sitter as an employee, is there any way the photographer could pay the babysitter as an independent contracter instead of as an employee (much as she pays other photographers who assist her on various shoots), issuing a

1099-MISC? The photographer is currently a sole-prop.; would it make any difference if the business was incorporated as an S-corp? Would the value of the child care service be imputed to the photographer on her w-2 anyway? Currently, my thoughts are that babysitting is a personal expense and only the first $3000 of it can qualify for personal deduction on her 1040. But I told her I would ask for opinions from you folks to see if anyone could suggest a creative, yet legal and legitimate, way of making this a business expense. Thanks, Elizabeth Brennan, EA

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Reply to
Elizabeth
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Here's a vote in support of your interpretation. Babysitting is babysitting, no matter how you dress it up. The only tax benefit available is the dependent care credit.

-- Phil Marti Clarksburg, MD

Reply to
Phil Marti

What is it "they" say? something like... first impressions are usually correct? Even IF ok for a proprietor using business premises, said provider would not qualify as independent contractor. And any S corporation benefits would be taxable to a 2% shareholder anyway. Just hope the photographer has a profit, otherwise, no child care credit even. ChEAr$, Harlan Lunsford, EA n LA

Reply to
Harlan Lunsford

Creative, definitely! Deductible? I seriously doubt it!

The code requires business expenses to be "ordinary and necessary." Babysitters would hardly qualify on either count. Since she has a personal obligation of child care, paying a babysitter, even if necessary to perform her duties, is still a personal expense. What other things could be called necessary and paid by the business, so as to make them deductible? Maybe we should start a poll? Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans

Reply to
L K Williams

Why not make the day care a business? Convert the room, hire a person to take care of her children and take in other children. One or two other children (depending on the ages) could set up a nice little side business. Look for someone who has a kid themselves who wants to work but stay close to her child. Even if you break even, you can deduct a lot of things that you couldn't do if you hired a babysitter. Probably going to be a W2 employee doing it this way. Just something to think about. Plus you could eventually grow it into a full time side business that gives you more contacts for your photo business.

Reply to
Scott

That's thinking outside the box!

Unfortunately you need to go out of your way to make this an arm's length transaction OR you will make an IRS auditor day.

Dick

Reply to
Dick Adams

Under section 45F a credit is allowed to employers who provide child care for their employees. Stu

Reply to
Stuart A. Bronstein

I have two clients who are wedding photographers in the Pittsburgh PA area. They are both relatively new in the business (one started in 2004, the other in 2005). I was absolutely amazed at how very profitable the wedding photography buisness is -- even from the first year! They gross $2500 to $9000 per wedding, and book 20 to 40 weddings per year.They have high equipment expenses, and significant advertizing and marketing expenses (at least in the beginning), but they are surprisingly profitable from startup!

Reply to
Elizabeth

Hmm... thanks Scott! I really like this idea. I'll pass it along to my client and we can both mull it over for a while. I wonder -- does anyone see anything wrong with Scott's approach?

Reply to
Elizabeth

hmmm...

  • business owner sets up secondary office in his home and what used to be "communting miles" become "business miles"
  • Sub-S Corp, owned by only one person, establishes health-care insurance plan for families of employees, and then employees only his own spouse, thus making his family health care deductable for the business.
  • Consultant deducts his lunches and dinners every day he is servicing a client outside of his own office (i.e. "on the road"), thus making many of his meals 50% business deduction.
  • office in home makes percentage of utilities, homeowners insurance, repairs, rent (or depreciation) and maintenance into business deductions (rather than non-deductible personal expenses) + percentage of RE taxes and mortgage insurance become business deductions which may or may not have been deductible from personal return. Isn't part of our job to help our clients structure their businesses in such a way that they get the maximum legal deductiblity of expenses?

Reply to
Elizabeth

Hah; now THAT's creative.

Anyway, you would still have to segregate personal costs for own kids and not deduct same.

ChEAr$, Harlan Lunsford, EA n LA

Reply to
Harlan Lunsford

Not to mention the regulations that day care centers must meet in many jurisdictions.

-- D.F. Manno | snipped-for-privacy@mail.com Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. ­ Winston Churchill

Reply to
D.F. Manno

I wouldn't dare try this one. Any business expense must be ordinary and necessary, and if my Sub S corporation has a primary office in town where all my clients are, there is absolutely no reason for me to have another office at home. I THINK this was tried once upon a time.

what about the related party rules which would attribute spousal benefits to the 2% plus owner? In short, this sounds like a section 105 plan which is not for corporate personnel.

"On the road" means out of town overnight. Meals while in town, at your tax home do not qualify.

By all means that is our job, to use all legal means and tax options for our clients. ChEAr$, Harlan Lunsford, EA n LA

Reply to
Harlan Lunsford

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