TurboTax Support Blog

Summer Child Care Questions

During the school year, depending on their age, your children are in after-school day care at the local center or spend a couple of hours at home alone in the afternoon. You keep the monthly child care center’s bills in your tax files for the child care tax credit on your next year’s tax return.

Now it is summer and you can’t leave the kids home alone all day while you work. It’s a mixed calendar. The first few weeks the kids are attending the local summer camp, for a couple of weeks they’ll be at the overnight camp a few hours away from home, and then the rest of the summer, your neighbor will be the “baby” sitter at your home. Are these summer expenses eligible for your child care credit?

The day camp expenses are eligible. If the camp costs include a fee for transporting your kid to and from the camp, that’s an eligible cost too. Before the camp days are over, get the camp’s information (official name, address, and identification number) for your next year’s tax return. The overnight camp costs are not eligible for the child care credit. Sorry.

The dollars that you pay the neighbor can certainly be included in your child care costs. Let the babysitter know that you will be listing her name, address, and social security on your tax return. And if you pay her more than $1,000, you may be a household employer. If so, you may have to withhold and pay social security, Medicare, and federal/ state unemployment tax on your payments to the neighbor. Check out IRS Tax Topic 756 and IRS Pub 926 .

If any of your children turn 14 during the summer, you can still claim the child care costs up until the day they turn 14. So if your son turns 14 on August 15^th, you can still deduct his local camp costs through August 14^th.

If you have your own business and your kids are old enough to do some work there, maybe you don’t need a sitter or camp this summer. You can employ your kids at a fair-market wage and deduct their wages as a business expense. You could also set up IRAs for them for $4,000 per year or up to their earned income, whichever is less and get their future savings started.

For more detailed information:

IRS- Child and Dependent Care Credit

IRS Pub 503 – Child and Dependent Care Expenses

IRS-Taxes for Household Employees

IRS - Household Employers Tax Guide

Summertime - Gambling - the IRS?

It may be summertime but the IRS hasn't forgotten you. The latest IRS Tax Tips article talks about your summer trip to Las Vegas or an afternoon at the racetrack (the racetrack season starts here in San Diego on Wednesday!) or a weekend at a local casino. The article reminds you that no matter how little you win or the type of bet, you are required to report the income on your tax return.

 

“How will the IRS know?” is often the first reaction of folks about this subject. Oh, the IRS will know. If you play bingo or the slot machines (the quarter slots are my favorite) and you hit a jackpot for at least $1,200 (that’s a lot of quarters), your winnings will be reported to the IRS on a Form W-2G.

 

If you bet on horse racing, your state lottery or a local sweepstake, your win will be reported to the IRS if it’s at least $600 and the winnings are at least 300 times the amount of the wager. This also applies to church raffles, charity drawings, and the like. 

 If you win $1,000 but you paid $100 for your sweepstake ticket, the $1,000 won’t be reported on a W-2G (the winning was only 10 times the wager of $100). But if you win a $1,000 and only paid $1 for your ticket, the payer will report it to the IRS for you.

 

The IRS doesn’t just stop at having the payer fill out a W-2G in your name with the winnings. In most cases, if the winning is more than $5,000, the payer has to withhold 25% of the winnings and send it to the IRS as withholding. If you’re lucky enough to win $10,000 in your state lottery, you’ll only receive a check for $7,500. The remaining $2,500 ($10,000 times 25%) will be sent to the IRS. In January of the following year, you’ll receive a W2-G showing taxable income of $10,000 and withholding of $2,500.

 

If you have a “noncash” win, like a car, you will still be taxed on the car’s Fair Market Value (FMV) and there will be 33.3% withholding if the FMV is more than $5,000. It gets confusing on how you pay the withholding. You can write a check for the withholding and give it to the payer to be forwarded to the IRS. Or the payer can pay the withholding for you. In that case, the amount of the withholding will be added to your taxable income on the winning. If the FMV of the car is $20,000 and the payer sends the IRS $6,660 of withholding for you, the W-2 G will show winnings of $26,660 ($20,000 + $6,660) and withholding of $6,660.

 

Oftentimes, folks “pool” money together to buy a lottery tickets. Regardless of how many folks are in the pool, there is just one ticket that wins. Whoever turns in the winning ticket needs to be sure that a Form 5754 is filled out. This form will show the information of all the winners on that ticket. If it’s not filled out, whoever turns in the ticket, will be taxed on the entire winning.

 

Now you’re probably thinking “but what about all that money I spent on the lottery all year and lost.” There’s good news and bad news here. You can deduct your gambling losses whether related to your winning or not. If you have a lot of race track losses but win your state lottery, those race track losses are deductible. Be sure to keep the receipts and it’s best to keep a journal or diary of your winnings and losses.

 

Now the down side. You can’t deduct more losses than winnings so if you had no winnings, you can’t deduct any losses. If you won $700 but had $2000 in losses, you can only deduct $700 of losses. This $700 would be reported on your Schedule A, under Other Miscellaneous Deductions (not subject to the 2% limitation).

 

So that’s the end of my preaching about the tax law and your winnings. I don’t want to ruin your enjoyment iwhen winning the lottery but I don’t want you to be shocked in February by what you may owe the IRS. Have a great vacation!

 

 

For more information:

IRS Tax Tips – Gambling Income and Expenses

 

IRS Form W-2G

 

IRS Summertime Tax Tip

 

TurboTax – Entering Gambling Losses