This is part II of a four-part series on the Time-Space Percentage. Part I was The Time-Space Percentage Quiz. Part III is How to Calculate Your Space Percent. Part IV is How to Claim The Exclusive Use Rule.
"Can I count the hours I spend cleaning my home?"
"Can I count the hours I spend on the Internet?"
"Can I count the hours I spend at a workshop on child development?"
What are these family child care providers asking about?
Time is money. This is particularly true for family child care providers because the more time you work in your home the lower your taxes. The hours you work are used as part of a formula called the Time-Space Percentage (T/S%) that determines how much of your home you can deduct as a business expense.
You want to make sure your T/S% is accurate because it will be applied to thousands of dollars worth of expenses: property tax, mortgage interest, house insurance, utilities, house depreciation, toys, furniture, appliances, and much more.
To calculate your T/S% you must first calculate your Time Percent and then your Space Percent.
The Time Percent
This percent is determined by adding up the number of hours you are using your home for business purposes and dividing this number by the total number of hours in the year (8,760). There are two types of hours to include: hours when day care children are present in your home and hours when children are not present but you are engaged in business activitites.
Hours when children are present in your home
Count hours from the moment the first child arrives until the last child leaves. Don't count the hours of operation as reflected in your contract; instead keep records of the actual hours children are present. If you care for children from 7 am to 5:30 pm that's ten and a half hours a day or 31% of the week. If your pick up time is 5:30 pm but the last parent usually leaves closer to 6:00 pm count this extra time. A half hour a day every day is equal to 1.5% of the year, which is significant when applied to all your house expenses.
Hours when children are not present in your home
Count all hours spent on business activities such as: cleaning, meal preparation, activity preparation, record keeping, parent interviews, parent phone calls, time spent on the Internet, and so on. Such activities may be done by your spouse (cleaning toys) or by your own children (laundry). Don't count time spent away from your home, even if you are engaged in a business activity (training workshop, transporting day care children).
Tracking your hours
Keeping track of your attendance hours is relatively simple; tracking the hours you work when children are gone requires more effort. Try to keep a daily record of all the hours you work when children are gone for at least two months each year. Use the average hours worked for these two months for the rest of the year. Mark this time on a calendar and note what time of day you did the work.
Carefully tracking the hours you work after children are gone is perhaps the most important thing you can do to reduce your taxes. Most child care providers underestimate these hours and pay higher taxes as a result. Every one and a half hours of work each week is equal to a rise of about 1% in your Time-Space Percentage. Although this might seem a small amount it's not when applied to thousands of dollars of house expenses.
The average amount of time providers care for children is about eleven hours a day, five days a week. This is equal to 33% of the year. The average amount of time child care providers conduct business activities after the children are gone is about 14 hours a week, or about 8% of the year. Therefore, a typical child care provider's Time Percent is around 40%. Yours may be higher or lower.
Enter your Time Percent on Part I of IRS Form 8829 Expenses for Business Use of Your Home.
I have answered a lot of questions about the T/S% at the daycare.com child care forum.
What questions do you have? Contact me on my Facebook page or email me at email@example.com
Image credit: blog.beedocs.com
For a comprehensive discussion of the T/S% see my book Family Child Care Record-Keeping Guide.
Copyright 2011, Tom Copeland, www.tomcopelandblog.com