Like most guys, I’ve slung many shovelfuls of dirt digging
drainage ditches, post holes, and for other reasons I’d like kept unsolved. Lots
of hard work and hours can go into digging holes, and in the end all you’ve
done is move dirt from here to there. An important thing to remember about
digging though is you can dig so deep you can’t get out, which is similar to
the fate awaiting a would-be client in the next few years. Sooner if the
Internal Revenue Service catches on.
Daisy Daycare, as I’ll call her, contacted me because her
husband insisted they have someone new prepare their taxes this year. I guess
after they received IRS letters the past two years each stating they owed over
$1,000 extra from deductions which they didn’t qualify, he didn’t want her
using an online tax product again to self-prepare. She ran a day care and filed
a Schedule C while he worked outside the home for a manufacturer, and they
really needed to turn things around. So after a short discussion, I thought I
could throw them a step stool to help them start climbing out.
Digging through their prior year return, I noticed Daisy
filed Form 2441 – Child and Dependent Care Expenses, with their three children
listed. What caught my eye however was the name of her daycare business as the
entity to which she paid the expenses. In essence, she claimed $4,800 in
expenses for paying herself to babysit her own children. There are states that
pay you for taking care of your own children (feel free to look them up) but
no, you can’t do that in Pennsylvania, or on your federal income tax return.
Especially if you don’t claim the income on your daycare’s Schedule C. So after
completing the preparation the correct way for the current year, I sat down to
give a shoveling lesson.
Calling a spade a spade, I let them know in no uncertain
terms they did not qualify to use Form 2441 because they didn’t pay the child
care expenses to someone outside their home and not claimed as a dependent. I also
stressed that in doing so the prior year, it was illegal and to not be
surprised if the IRS sent another letter. I presented the return as I had
completed it, which had a smaller refund than they anticipated ($5,000 was
spoken and written to me several times to give me a number to shoot for, I
suppose). Needless to say my work was rejected in favor of the self-prepared
online tax product.
Keep digging, Daisy. Keep digging.
