If my wife owns a small business (not full time but part time work) - can we still deduct preschool childcare expenses?

[AnnaB]

Yes, as long as the expenses were paid for the purpose of both spouses working.  Please refer to the excerpt below from IRS Publication 503 for the expenses that should be counted when one (or both) work part-time.

Part-time work.   If you work part-time, you generally must figure your expenses for each day. However, if you have to pay for care weekly, monthly, or in another way that includes both days worked and days not worked, you can figure your credit including the expenses you paid for days you didn't work. Any day when you work at least 1 hour is a day of work.

Note: If your spouse's self-employment resulted in a net loss, this would be considered as them having no earned income and you would not qualify.

[mimalkin]

Would it still qualify if net income for year was as low as 300?

[AnnaB]

Yes, as long as she did indeed have net self-employment income and therefore, earned income.  Just make sure you follow the rules for calculating expenses according to the second paragraph!

[mimalkin]

One more thing - to calculate , do you just take number of days work / 365 days and take that % times the total pre school tuition ( it is for pre school by the way)

[AnnaB]

In theory, yes, however, you will note it says if you have to pay weekly, monthly (or maybe annually for tuition?), then you can take the full amount since you are required to pay for the non-work days.

[AnnaB]

If your preschool allows them to only attend when your spouse is working, that is when you would pro-rate it.

[mimalkin]

Ok so my kids both go full time and I pay quarterly so I can take the whole year amount essentially as the deductible amount - sorry for the questions!

[AnnaB]

Don't be sorry! Yes, if you paid quarterly and had to pay for both work and non-work days, then you can claim the entire expenses (up to the IRS maximum, of course).

[mimalkin]

What is the maximum - I believe I paid about 8000-10000 for both of my kids together

[AnnaB]

You can only claim $6,000 for more than 1 qualified children up to 2.  So, $3,000 per child.

Note: That's not EXACTLY accurate since if you have 2 qualifying children (via being under age 13), but all of your expenses were only for one child, you can claim the $6,000 on 1 child.  In the event you only have 1 child, it'd be limited to the $3,000.