Business & farm

Hi, psshas, let me clarify the difference between the two posts....both are technically correct, but the two posts made different assumptions about whether your spouse's online business generates an income or generates a loss for the year

In my post, I answered based on your statement that your spouse not working prior to starting the online business, and based on the statement that she has not generated any income in her online business.  If the business does not have net business income for the year, (i.e. no income at all, or has a net loss, where expenses exceed income) then you do not qualify for this benefit, as your spouse has no earned income.

However, Marctu's response would be correct if your spouse has earned income for the year - in that situation then you would be able to take advantage of this tax credit, or take advantage of using a flexible spending account for childcare.

So, the difference between our two posts is related to whether or not your spouse has earned income for the year. To get a credit for dependent care expenses, the credit is limited to the lower of your or your spouse's earned income. The amount you put into a flexible spending account that you can exclude from income is limited to the lower of your or your spouse's income.

So, if in 2024 your spouse's business does not generate a net profit (and she does not have a W2 job), then you are not eligible for either of these tax benefits. If, however, your spouse DOES have earned income (either from a W2 job, or her business has net income for the year), then you will be eligible - but remember the amount of the tax benefit can still be limited.  Let's say, for example, that her business generates net self-employment income of $1,500, but you put $5,000 into a dependent care flexible savings account. Only $1,500 of the contributions will be tax free.

I hope that clarifies the responses for you - feel free to post again if you have any other questions!