Hypothetical Question

[Baby Beluga]

I have a family who has paid $75/week since August to hold a spot for their child. Obviously I claimed this as earned income on my taxes and sent the parents a receipt for their tax purposes.

The reservation contract states the holding fees are not refundable. However, if things go south and I choose not keep the child enrolled (based on what mom keeps saying, I am terrified of this child being here and how it will negatively effect myself and my group) I plan on refunding at minimum 50% of what they paid in holding fees. If I refund, how will that effect my taxes? Do I claim it as a loss on 2019 taxes? Do I do an amendment for 2018? Is it a wash? How does this effect the parents taxes? Do they have to do an amendment since they claimed childcare expenses that were then refunded?

[TomCopeland]

holding fee

I have a family who has paid $75/week since August to hold a spot for their child. Obviously I claimed this as earned income on my taxes and sent the parents a receipt for their tax purposes.

The reservation contract states the holding fees are not refundable. However, if things go south and I choose not keep the child enrolled (based on what mom keeps saying, I am terrified of this child being here and how it will negatively effect myself and my group) I plan on refunding at minimum 50% of what they paid in holding fees. If I refund, how will that effect my taxes? Do I claim it as a loss on 2019 taxes? Do I do an amendment for 2018? Is it a wash? How does this effect the parents taxes? Do they have to do an amendment since they claimed childcare expenses that were then refunded?

If you refund any money, report it as a business expense. Call it "parent refund" and put under Other Expense on Schedule C. Assuming your got the fee in 2018 and refunded part of it in 2019, you and the parent don't amend 2018. You claim the refund as an expense in 2019. The parent reduces the amount they paid for child care in 2019 by the amount they got from the refund.

[Baby Beluga]

If you refund any money, report it as a business expense. Call it "parent refund" and put under Other Expense on Schedule C. Assuming your got the fee in 2018 and refunded part of it in 2019, you and the parent don't amend 2018. You claim the refund as an expense in 2019. The parent reduces the amount they paid for child care in 2019 by the amount they got from the refund.

Thank you, Tom - I appreciate your knowledge!