Reduce your taxes by deducting your childcare expenses – 2012 Tax Season

02/13/2013

Written By David Field, From WSC Insurance Group

When you pay for childhood costs such as daycare, babysitting or after school care the parent with the lowest income may deduct up to $7,000 for each child from their taxable income. Since this deduction allows you to reduce your taxable income, it is possible to move from a higher paying tax bracket to a lower one with this single deduction.

Not all childcare costs are applicable. In order to be deducted, these costs must be incurred to allow both parents to earn employment income, run a business, attend school or conduct research (through a grant).

There are many expenses parents incur that include childcare services. Outside of daycare, babysitting and after school programs, expenses such as day camps, day sports programs, overnight camps, and boarding schools may be claimed. However, it is only the childcare expenses and not the educational costs (such as tuition, transportation, and clothing) that can be used to reduce your taxable income. Again, the childcare services must be an expense that allows both parents to work and earn an income.

As for how much you can deduct, it depends on the age of your child. If your child is under the age of six then up to $7,000 a year can be deducted yearly for that child. Between the ages of seven and fifteen each child can give one parent up to $4,000 in deductions.

If you have paid for childcare in 2012 it is definitely worth the effort to deduct these expenses from your taxable income for 2012. Form T778 is available from the Canada Revenue Agency to include in your tax return.

Check out David’s other article on how families can save up to $522.25 this tax season with various tax credits!