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Old 09-10-2012, 12:46 PM   #21
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You would probably need to file if you consider this income. No income tax would be owed because of the low amount, but you would need to pay Social Security and Medicare taxes. You might be eligible for the earned income credit, would would probably offset much of the FICA taxes. Your daughter might be able to deduct the payment to you as child care expense. This option is worth looking into because it might not cost anything but could increase your Social Security by a couple of dollars later.

Your daughter could also consider this a gift and file the IRS form 709. No one pays anything in taxes and it is all legit and above board.
IRS form 709 is not needed unless the gift exceeds $13,000
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Old 09-10-2012, 02:04 PM   #22
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IRS form 709 is not needed unless the gift exceeds $13,000
I believe this is correct.

See "Who must file" in the instructions for form 709.

http://www.irs.gov/pub/irs-pdf/i709.pdf
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Old 09-10-2012, 02:08 PM   #23
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I am not familiar with US Tax law, but I am sure your daughter can "gift" you up to about $11,000.00 with no tax consequences.
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Old 09-10-2012, 02:08 PM   #24
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As long as your daughter isn't claiming a child care credit and giving the IRS your social security number there should not be an issue.

As far as not being required to pay taxes, I would suggest going to a tax prep firm, like H&R Block and have them run the numbers to make sure. As others pointed out you might possibly qualify for some refundable credits. Block will look over your tax situation for free. If you are required to file and don't like their price, you are under no obligation.

As far as the 72T suggestion, you will be locked into it for five years or until you are 59.5, whichever is longest. So in your case at 57 you would be locked into taking the same amount until age 62. You will still have to pay ordinary income tax but would not suffer the 10% early withdrawal penalty.

As far as taking advice from forum members do so at your own risk, much of it is good and spot on but there is no substitute for doing your own due diligence and sitting down face to face with a qualified tax person to make sure all the Ts are crossed and the Is dotted.

Just my two cents.
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Old 09-10-2012, 02:13 PM   #25
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No she does not claim child care credit? We looked into the 72T but didn't do it because we were confused and our savings in loan that has our IRA didn't have any clue about how to help us either. Not much confidence there, I can promise you that.
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Old 09-10-2012, 02:24 PM   #26
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I think you need to look at this more broadly as an opportunity. It may be BETTER for you to claim this as income and for your daughter to claim the cost.

If that is your only income you would pay a little SS self-employment tax on the income (~$260 on $5,000 of income according to TurboTax® TaxCaster - Free Tax Calculator - Free Tax Estimator

However, your daughter could claim the child care tax credit and the benefit to her would likely significantly exceed the cost to you, so between the two families you would be better off and your daughter could give you a gift to pay for the $260 of employment tax.

Might be worth exploring.
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Old 09-10-2012, 03:06 PM   #27
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I think you need to look at this more broadly as an opportunity. It may be BETTER for you to claim this as income and for your daughter to claim the cost.

If that is your only income you would pay a little SS self-employment tax on the income (~$260 on $5,000 of income according to TurboTax® TaxCaster - Free Tax Calculator - Free Tax Estimator

However, your daughter could claim the child care tax credit and the benefit to her would likely significantly exceed the cost to you, so between the two families you would be better off and your daughter could give you a gift to pay for the $260 of employment tax.

Might be worth exploring.
Absolutely. I was going to post the same thing. This is a perfect opportunity to save your daughter some dough on her taxes above what you would pay on yours. And guess what? All of your child care related expenses are deductible against your income. Groceries used to feed the kid(s). Toys, entertainment expenses, transportation if you take them places, etc. As long as these are ordinary and necessary expenses for your "day care business".

We do this with my MIL who cares for our infant. Our tax savings are far in excess of the small amounts she pays for payroll taxes (otherwise she is in the 0% income tax bracket).
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Old 09-10-2012, 03:12 PM   #28
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I don't have a daycare. I am just Grandma
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Old 09-10-2012, 03:17 PM   #29
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Gromit's post is correct that the gift limit for 2012 is $13,000 per year. That would clearly apply to the $400ish mortgage payment that your daughter is making for you. The childcare you provide for her is less clear, but for all practical purposes, you are doing that out of the goodness of your heart for your grandkids and it is doubtful the IRS would even touch that issue. Any gifts for $13 K/year or under do not need to be reported on a 709 Gift Tax Return. So, you are golden to not worry or need to do anything about that issue.

Cass
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Old 09-10-2012, 03:23 PM   #30
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Gromit's post is correct that the gift limit for 2012 is $13,000 per year. That would clearly apply to the $400ish mortgage payment that your daughter is making for you. The childcare you provide for her is less clear, but for all practical purposes, you are doing that out of the goodness of your heart for your grandkids and it is doubtful the IRS would even touch that issue. Any gifts for $13 K/year or under do not need to be reported on a 709 Gift Tax Return. So, you are golden to not worry or need to do anything about that issue.

Cass
Thank you, thank you!!!!
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Old 09-10-2012, 03:43 PM   #31
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The self employment tax would be 15% of the net income ( income after expenses) so, could be more like 720.00 on 5000 income. No income tax would be due if this was sole income. Small earned income tax credit( 360.) would offset some, but not all of the self employment tax ( assuming no childen at home) Run the numbers to see what daughter gains in child tax credit, if it offsets what you pay in self employment tax.
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Old 09-10-2012, 03:44 PM   #32
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I mean what your daughter will gain in the child dependent care credit.
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Old 09-10-2012, 04:03 PM   #33
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By your description it doesn't sound like it is taxable income. So not declaring is perfectly fine.

On the other hand it is worth investigating the Earned Income Tax credit to see if you might not be better off creating a more formal arrangement where you daughter pays you to take care of the kids.

You and your husband would be eligible for an earned income tax credit, your daughter would be eligible for a tax credit up to 35% for the money she pays you as child care tax credit.

The main catch would be that you would need to pay social security tax as a self-employed worker.

You'll want to use something like the free version of turbo tax to investigate this further.

By my back of the envelope calculation look like this.
She pays $8/hour x 2.5 hr/day x5 days = $100 week x 40weeks= $4000 year.
You are eligible for $308 earned income tax credit.

She is eligible for child care tax credit which could be as much $4,000 *35%= $1,400 depending on filing status and income.

You'll owe about $560 in social security and medicare tax. But at your age it could be a good thing to have additional social income cause it MAY boost your SS check in only 5 years.
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