Tis the season of gift giving.
What are the tax consequences when you give gifts to the families in your care?
Many family child care providers serve families who are struggling financially. Some providers want to help these families celebrate Christmas by giving them extra gifts for the entire family to enjoy. Such caring and generosity is admirable.
If you give gifts to a family in your care, you can claim a business deduction of up to $25 per person, per year. You cannot deduct anything above this amount. So, if you gave gifts to the mother, father, and two children you could deduct up to $100 but no more (assuming that each gift was worth at least $25).
For a description of the difference between a gift and an activity expense, see my article “Family Child Care Christmas: Giving Gifts.”
You cannot claim a personal charitable contribution on any of the gifts you give to the families in your care. This is because families are not a charitable organization. Examples of non-profit charitable organizations are churches, Salvation Army, Goodwill, colleges, etc. You can claim a charitable contribution to such organizations on your IRS personal itemized tax form Schedule A.
The holiday season is a time of giving, but don’t let the tax consequences determine what you do. Gifts should be seen as gifts, not tax deductions.
Tom Copeland – www.tomcopelandblog.com
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