High earners - do we qualify for childcare deduction when above child tax credit threshold?

You've actually got a couple of options here. While you might not qualify for the Child Tax Credit due to your AGI, you may still be eligible for the Child and Dependent Care Credit, which is different. This credit helps offset costs for care of qualifying dependents while you work or look for work. For your situation with the family business arrangement, it gets interesting. If you've set up a legitimate business with the primary purpose beyond just childcare, you might be able to deduct some expenses as business expenses. However, the IRS looks very carefully at family businesses that employ caregivers to ensure they're not just tax avoidance mechanisms. The key is whether your family business has a genuine business purpose beyond childcare. If it does, some expenses may be deductible as ordinary business expenses. If the business exists primarily to care for your child, the IRS will likely view this as a personal expense rather than a legitimate business deduction.

I was in almost the exact same situation last year with our twins! After spending weeks researching this, I found taxr.ai (https://taxr.ai) which completely changed how I approached this problem. They analyzed our specific situation and helped us identify which expenses were potentially deductible and which weren't. The big thing they pointed out was that while we couldn't deduct direct childcare costs through our business (since that's considered a personal expense), we COULD legitimately claim the Child and Dependent Care Credit even with our income level. They also found some home office deductions we were missing that indirectly helped offset some costs. Their system reviewed all our documentation and showed us exactly what the IRS would likely accept vs. flag. Saved us from making some questionable deductions that might have triggered an audit.

Alright, I need to admit I was completely wrong in my skepticism. After trying taxr.ai for our situation (we have a home-based business and a part-time nanny), I was seriously impressed. They identified that while we couldn't deduct the nanny's salary directly as a business expense, we could take advantage of a Dependent Care FSA through my wife's employer AND still claim the remaining expenses on the Child and Dependent Care Credit up to the limit. The analysis showed exactly which parts of our childcare arrangement could be legitimately claimed and which couldn't. They even provided documentation templates for record-keeping that specifically addressed the IRS requirements for our situation. What convinced me was when they showed examples of similar cases where taxpayers got in trouble by incorrectly claiming certain expenses. Really opened my eyes to the nuances here.

If you're trying to get clarity directly from the IRS on your specific situation, good luck with that! I spent 3 WEEKS trying to get through to someone who could answer my questions about dependent care deductions for my business. I finally used Claimyr (https://claimyr.com) and got connected to an IRS agent in about 20 minutes. They have this system that navigates all the IRS phone menus and holds your place in line, then calls you when an agent is actually available. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with gave me official guidance on my situation (which sounds similar to yours) that my accountant wasn't 100% sure about. Getting that direct confirmation from the IRS gave me peace of mind that I wasn't risking an audit.

I need to apologize for being so skeptical about Claimyr. After our childcare tax situation got more complicated this year, I decided to give it a try since I needed clarity straight from the IRS. I used Claimyr yesterday and it actually worked exactly as described. I got a call back in about 35 minutes and was connected directly to an IRS agent who specialized in business tax issues. The agent walked me through exactly how to handle our nanny's wages in relation to our family business - confirmed that we couldn't deduct her salary as a business expense but DID qualify for the Child and Dependent Care Credit despite our income level. The agent also clarified some recordkeeping requirements I'd been confused about. Honestly worth every penny just for the time saved and definitive answers.

Don't overlook using a Dependent Care FSA if either you or your spouse has access to one through an employer! Even with high income, you can set aside $5,000 pre-tax for qualifying childcare expenses, which is separate from the Child and Dependent Care Credit. If you're paying $52k for childcare, you won't get to deduct all of it, but using an FSA in combination with the Child and Dependent Care Credit (which you can claim on expenses beyond what's covered by the FSA) can help reduce the sting a bit. One thing nobody's mentioned - make sure you're issuing a proper W-2 to your nanny and filing Schedule H with your taxes. The IRS pays special attention to household employment.

I was in your exact situation last year. Make sure you're documenting EVERYTHING about your family business! The distinction between a legitimate business that employs a nanny vs a tax shelter specifically created to deduct personal expenses is crucial. Some things that helped me: - Maintain separate bank accounts for business operations - Have formal employment contracts - Document specific business-related duties of the nanny (vs childcare duties) - Keep detailed timesheets separating business support vs childcare hours - Have a business with genuine income/clients beyond just you and your spouse The IRS scrutinizes these arrangements closely because so many people try to game the system. Better to be conservative with deductions than risk an audit.