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New Member
posted Jun 4, 2019 7:15:52 PM

Child care deduction for a business owner

I own a business and work at it full time. I have input all my business income and my husbands W2 and the Home and Business software is telling me I don't qualify to for the child care deduction because I don't have a w2, am not a student nor disabled. I work full time though just don't have a w2. How do I rectify this? I really hope business owners aren't punished by not being able to deduct this.

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1 Best answer
New Member
Jun 4, 2019 7:15:54 PM

You are correct.  When you are self employed and report this income on an IRS Schedule C, the Net Income (i.e. the income remaining after you've deducted your expenses) from this business qualifies as earned income for the Child and Dependent Care Credit.  

However, if your business is reporting zero income or a loss, this will not count as earned income and thus you will not qualify for the credit.  

If you do have positive net income on your Schedule C, and believe you should qualify for the credit, make sure you have your Business Income coded to you and not your spouse.  To verify that it's coded correctly: 

  1. Sign into your TurboTax account
  2. Click the orange Continue Your Return button if prompted
  3. Click Search in the upper right hand corner
  4. Type "Schedule C" in the search box, and hit enter on your keyboard
  5. Click Jump to Schedule C
  6. You'll come to the page shown in the first attachment below
  7. Click Edit
  8. On the next screen, next to Business Profile, click Update
  9. You'll come to the screen shot in the second attachment
  10. Make sure that your name is listed on this screen and not your husband's name

3 Replies
New Member
Jun 4, 2019 7:15:54 PM

You are correct.  When you are self employed and report this income on an IRS Schedule C, the Net Income (i.e. the income remaining after you've deducted your expenses) from this business qualifies as earned income for the Child and Dependent Care Credit.  

However, if your business is reporting zero income or a loss, this will not count as earned income and thus you will not qualify for the credit.  

If you do have positive net income on your Schedule C, and believe you should qualify for the credit, make sure you have your Business Income coded to you and not your spouse.  To verify that it's coded correctly: 

  1. Sign into your TurboTax account
  2. Click the orange Continue Your Return button if prompted
  3. Click Search in the upper right hand corner
  4. Type "Schedule C" in the search box, and hit enter on your keyboard
  5. Click Jump to Schedule C
  6. You'll come to the page shown in the first attachment below
  7. Click Edit
  8. On the next screen, next to Business Profile, click Update
  9. You'll come to the screen shot in the second attachment
  10. Make sure that your name is listed on this screen and not your husband's name

New Member
Jun 4, 2019 7:15:55 PM

I HAVE RENTAL REAL ESTATE I OWN AND TAKE CARE OF, RENTAL INCOME IS REPORTED ON SCHED E, WHY DOES THIS NOT COUNT AS MY EARNED INCOME FOR CHILD DAY CARE DEDUCTION?

New Member
Jun 4, 2019 7:16:00 PM

@virsab Unfortunately, the IRS does not consider Schedule E income to be "earned income".  Earned income is only that which you pay social security taxes on.