Generally speaking, expenses incurred in connection with your children are not tax deductible. However, there are a few tax credits that you may be eligible for. The first one is an Education Credit, but given the ages of your children, you are a long time away from that. However, if you pay someone to watch your children while you ()and your spouse, if married) work, you may be eligible for the Child and Dependent Care Credit. This credit is calculated as the smallest of:
- $3,000 ($6,000 for two or more qualifying persons)
- 20-35% of the qualified expenses incurred and paid in the current year (where you fall in the 20-35% range is dependent on your Adjusted Gross Income)
- Taxpayer's earned income
- Spouse's earned income.
Generally, a married couple must file a joint return in order to take this credit, although there is an exception to this rule. You can find more details about this credit in IRS Publication 503, Child and Dependent Care Expenses, found here: IRS Publication 503
Costs you incur to support your child, such as diaper's, clothing, food, etc. cannot be deducted on a tax return.
You also asked if you can claim your parents as dependents - for you to claim them, they must meet the rules of being a qualifying relative. The four tests are
- Not a qualifying child test
- Member of household or relationship test
- Gross income test
- Support test
You can find detailed about each of these tests in IRS Publication 501, located at this link: IRS Publication 501
In your case specifically, I presume they are not the qualifying child of anyone else, and you mentioned that they live with you so they also meet the second test. That leaves the last two tests that you need to review: For the Gross Income test, the person's gross income must be under $4,700 for 2023 (increased to $5,050 for 2024). Gross income is defined as all income in the form of money, property, and services that isn't exempt from tax. So, depending on how much retirement and other income they each have, they may or may not meet this test. The last test you have to review is the support test - you generally must provide more than half the person's total support during the calendar year. Again, for further information and specifics on how to calculate total support paid, you can refer to IRS Publication 501.
So, if each of your parents meets the above rules, yes, you can claim them as dependents on your tax return.
Finally, you asked about paying your mom to watch your children while you work. If you did so, you would not be able to "deduct" the costs you pay, but you may be eligible for the Dependent Care Credit discussed earlier. However, you may be in a catch 22 situation here: be aware that you cannot claim this credit if you are paying someone who is your dependent. In other words, if your mom meets the rules to be your dependent, and you pay her to watch your children while you (and your spouse, if married) work, those payments will not qualify for this credit.
Also remember, any amounts you pay your mom to watch your children would be considered taxable income to her, so depending on the amount, paying her may mean that she no longer meets the Gross Income test to be your dependent.
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