Deducting Childcare Expenses Advice

We have an arrangement that our neighbor watches our daughter twice a week (~16hrs) for about two-thirds of the year, so my wife can work part-time out of the house for her home business. We went to claim the deduction when we filed taxes, and our accountant indicated that we can't take the deduction due to our neighbor not claiming the $$$ they receive as income. Not to say it is a ton of money, but we are paying about $2500/year, and we are in the 28% bracket. So my simple math has us out $700, right? The question I have is do I ask them for a discount, go ahead and file for the deduction knowing they won't provide me with their SSN, or swallow my pride and frustration and say "hey this is a good deal that we are only paying $25/day and live with it?"

Any input, thoughts, rants, advice is much appreciated.

SugMag,

Tough call.

Does the neighbor have any taxable income after standard/itemized deductions and personal exemptions? Income tax may not be a problem.

Of course the neighbor would need to pay Self Emplyment Tax on their profit.
Or you may want to pay the SE in exchange for taking the deduction.

And perhaps the neighbor may need to be licensed by a local authority to provide the care they are providing .

You may already have the discount. Check what the care would cost if you went to the child care center. You may just want to suck it up and keep your nice arrangement.