The Business of Caring for a Grandchild (or other relative)

What are the business issues involved when a family child care provider cares for her grandchild or other relative?

The first issue is whether or not there is a business relationship. Because the child is a relative, the IRS will initially treat the relationship as a personal one. The consequence would be that the child care provider could not deduct any business expenses associated with caring for the child.

To show that this is a business relationship, the child care provider must be paid to care for the grandchild or other relative (cousin, niece, nephew, etc.). The payment must be more than a token amount. So, if the child care provider normally charges $185 a week and is paid $50 a week to care for her grandchild for the same number of hours, this would not constitute a business relationship.

If there is a business relationship then the child care provider can deduct the normal business expenses associated with caring for the relative child (food, toys, supplies, etc.).

When caring for relatives you need to be careful in distinguishing business time from personal time. If your grandchild is coming to your home, and you are not being paid for this time, this is personal time and is not part of the business relationship. You could not deduct the cost of food served to a child during personal time and you could not count these hours caring for the child as part of your Time-Space Percentage.

For example, let's say yo are being paid to care for your grandchild 7am-5pm Monday - Wednesday. Assuming you are being paid what a non-relative would pay you for the same number of hours, you can deduct any meals served to your grandchild during this time. But, you could not deduct a meal served to the child on Sunday or Wednesday after 5pm.

Some child care providers are paid to care for their grandchild over night or on weekends. If the amount of payment is consistent with what you would charge non-related children, then you can deduct expenses associated with this care as well as the hours you are working.

When caring for relatives I strongly recommend you keep careful records to show that you have a business relationship. This includes having a written contract with the parent showing the hours you are being paid. This is particularly important if your grandchild is living with you.

Tom Copeland - www.tomcopelandblog.com

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