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Child Care Tax Credits: Easy Tips to Make Sure You Don't Flag an Audit

Child care tax credits, also known as dependent care tax credits, are an important tax break in place to help hard working families offset the ever increasing cost of child care they have to pay, just so they can go out to work and keep their heads above water. In families of low income or minimum wage workers, child care can sometimes take a bigger bite out of their pay check than rent, car payments, or food. Sometimes child care is so expensive, that families find themselves in the strange position that it makes more financial sense for them to be unemployed.

To mitigate these circumstances, dependent tax credits allow people to claim the money they spent on child care as a deduction on their income taxes, lowering their tax bills, and in some cases, increasingly their refunds. The downside to all of this, though, is that claiming a dependent or child care tax credit can sometimes make the IRS look more closely at your return, and sometimes can put you in the audit firing line. To make sure this doesn't happen to you, follow a few simple tips that will help make your tax return almost audit proof.

The first thing you need to do is document, document, and document. Payment for child care is often a casual exchange of cash between friends. When it comes to file your taxes, though, that simply isn't good enough. If you pay in cash, get a signed and dated receipt of some sort, even if it is just something you have jotted down on a piece of notebook paper. Even better, pay by check and keep copies of all cancelled checks. If your child is enrolled in a day care, keep copies of your day care contract, the bills they give you, and your payment receipts. When in doubt, keep it. It will be better for you to have too much information than not enough if a problem arises.

The second step you should take is to head off any problems before the IRS finds them. If there is something on your tax return that might look strange, include a note with your return explaining the situation and as much documentation proving your position as you can. The IRS uses auditing as a way of generating new income streams, so if they think you will be able to deflect their challenges, chances are they won't bother.

Another trick is to file your taxes on the due date and not before. If you file early, the IRS has more time to sit there and comb through your return while they're waiting for all the procrastinators to get their forms in. Take advantage of this rare opportunity when procrastination is actually a good thing, and send your return in with the rush. You'll be less likely to stand out in the crowd if the crowd is larger. Also, file by mail and not electronically. Surveys of recent audits show that people who filed online were audited in greater numbers than people who filed through the mail.

Alas, there is no way to completely avoid an IRS audit, and the fact of the matter is that claiming a child care tax credit deduction is one thing that pushes your chance of up. Off set your chances of being audited by following the simple tips listed above and take heart in the fact that less than 1% of the population is audited every year. Keep all your paperwork in order, and if you are the unlucky one, you'll be ready for them.