Tax Sausage and Frank's Birthday Animal
In this edition of the Flying Point Update, we're going to talk about the beautiful absurdity of tax season, the Child and Dependent Care Credit, and Frank’s birthday pick animal. In case you didn’t read the previous issue, Chasing Deductions and Flying Squirrels, Frank turned 4 and was promised he could pick the animal for the next newsletter.
Top of Mind
It's mid-February, which means my inbox is a steady stream of W-2s, 1099s, brokerage statements, and the occasional "I think I have everything... does this matter?" email with a photo of something that absolutely matters.
I genuinely love this time of year. But I'll also admit that every tax season brings a fresh appreciation for just how wonderfully, absurdly complicated our tax system has become.
Consider: the United States tax code runs to roughly 4 million words. The instruction booklet for a standard 1040 is longer than most novels. We have separate forms for calculating the tax on your other forms. There is a worksheet to determine whether you need to fill out a different worksheet. I spent twenty minutes last week confirming that a particular box on a particular form feeds into a schedule that ultimately moves one number, one line, on a return. That number was forty-seven dollars.
I don't say this to complain. This is the job, and I find a weird and genuine satisfaction in navigating it well on behalf of clients. It’s the same feeling you used to get from a well organized iTunes library complete with album art, assuming you’re old enough to remember that. For some of you, that reference may resonate. There's something clarifying about tax season that strips away any pretense that the system is elegant. It is not elegant. It is a decades-long accumulation of compromises, exceptions, phase-outs, and special carve-outs, each one added for reasons that made sense to someone at some point in time.
The good news is that you don't have to care how the proverbial tax sausage gets made. Gather your documents, flag anything that changed last year, and focus on the number at the end. The insane, interconnected worksheet rabbit hole is my problem.
Worth Knowing
With Frank entering public pre-k next year, we’ve been doing some examining of our child care expenses. My tax brain goes immediately to how this will impact our Child and Dependent Care Credit. We touched on this briefly in our very first newsletter, Summer Camp and Turkeys, but it deserves a deeper look since this is genuinely one of the more commonly missed or under-claimed credits for families.
What it is: The Child and Dependent Care Credit offsets a portion of what you pay for care while you (and your spouse, if married) work or look for work. It's not a deduction. It's a dollar-for-dollar reduction in your tax bill.
What qualifies: This is broader than most people realize.
Day care and licensed child care centers
After-school programs (the care portion, not tuition)
Summer day camps. This one surprises people every year. Overnight camps don't qualify, but day camps do.
A babysitter or nanny, even if you're paying an individual rather than a center
Before-school care programs
Pre-K and nursery school (the care component qualifies even if there's an educational element)
The child generally needs to be under 13. The care must be so that you can work or actively look for work, not just for personal convenience.
The math: You can claim up to $3,000 in qualifying expenses for one child, or $6,000 for two or more. The credit itself is worth between 20% and 35% of those expenses depending on your income, so the maximum credit ranges from $600 to $1,050 for one child, or $1,200 to $2,100 for two or more. Lower income families get the higher percentage.
One important interaction: if your employer offers a Dependent Care FSA and you're contributing to it, those dollars reduce your eligible expenses for the credit. You can't double-dip. If you're maxing out a $5,000 FSA and have two kids, you may only have $1,000 in expenses left to claim for the credit. Worth understanding how these interact before assuming you're getting the full benefit of both.
Documentation: Keep your receipts and records. For a care center or program, you'll need the provider's name, address, and tax ID number. For an individual caregiver, you'll need their Social Security number. One thing worth knowing in advance: if you're paying a household employee more than $2,700 in 2025, you may have payroll tax obligations. That's a separate conversation, but worth flagging if it applies to you.
Naturally, there is a specific form for this. Form 2441, which flows through to your 1040. If you've been paying for qualifying care and not claiming this, it's worth a quick look at what you might have left on the table.
Mark Your Calendar
March 15th: S-corp and partnership tax returns due, or extensions must be filed. Also the deadline for Form 2553 to elect S-corp status for 2026. If you’re curious about s-corps, let’s talk sooner rather than later.
April 15th: Individual returns due. Also the deadline for IRA contributions for 2025 and Q1 2026 estimated tax payments.
Maine Wildlife Facts
Frank turned 4 last week and was promised his pick of any animal in the world for his birthday newsletter. Will has historically chosen animals we've actually encountered: snapping turtles, fireflies, barred owls. Frank chose megalodons.
I'd like to say this surprised me. It did not.
Megalodon (Otodus megalodon) was a shark that ruled the world's oceans from roughly 23 million years ago until about 3.6 million years ago. At an estimated 50 to 60 feet long and potentially 50 tons, it was one of the largest predators to ever exist. Its teeth (essentially the only fossils we have, since shark skeletons are cartilage) could reach 7 inches long. A great white shark tooth, for comparison, runs about 2 inches.
Here's where it gets interesting for Maine. Megalodons preferred warm, shallow coastal seas, exactly the kind of environment that existed along much of the East Coast millions of years ago when sea levels were considerably higher than today. The Gulf of Maine was warmer, shallower, and looked nothing like the cold, rocky coastline we know. It's not a stretch to imagine megalodons patrolling waters that covered ground we now walk on.
They went extinct long before humans arrived, likely due to a cooling ocean, the decline of large prey, and competition from smaller, more adaptable predators, including the ancestors of today's great white shark.
No, megalodons are not still alive somewhere in the deep ocean. Frank remains unconvinced on this point, insisting that we look for one this summer.
These Maine wildlife facts have been brought to you by Will (7) and Frank (4), Flying Point Advisors' on-staff naturalists.
Questions about any of this? Just reach out — I read every email and love hearing from you. Thanks for reading. You'll hear from me again in about two weeks.
-Mike
Disclaimer
The Flying Point Update is provided for general educational and informational purposes only. The content in this newsletter reflects my thoughts and observations on tax, accounting, and financial planning topics, but should not be considered personalized tax, accounting, or investment advice for your specific situation.
Tax laws are complex and change frequently. The information presented here is based on current tax law as of the publication date and represents general concepts that may not apply to your circumstances. Every individual and business has unique factors that affect their optimal tax and financial planning strategies.
Before making any financial decisions or implementing any tax strategies discussed in this newsletter, please consult with a qualified tax professional, CPA, or financial advisor who can evaluate your specific situation. If you'd like to discuss how any of these topics might apply to your circumstances, I'm always happy to chat.