The Time-Space Percentage (T/S%) is the single most important number for a family child care provider to accurately calculate on her tax return. It will make the biggest difference in reducing your taxes.
The T/S% represents the proportion of your home that is used for business purposes. You will also use it to determine how much of your shared business and personal expenses can be deducted as a business expense. Such expenses include:
House expenses: House depreciation, house improvements, house insurance, house repairs/maintenance, mortgage interest, property tax, utilities (gas, oil, electric, sewer, water, cable television, garbage) and rent.
Shared business and personal expenses: cleaning supplies, land improvements (fence, patio, driveway, underground sprinkler system), personal property depreciation (furniture, appliances, play equipment, television, etc.), toys, yard supplies, and much more.
As you can see, these deductions can amount to thousands and thousands of dollars. That's why calculating your T/S% correctly is so important!
If an item you purchase is used exclusively for your business you can deduct 100% of the cost. But if it's also used by your family then you can't deduct it all. Instead, apply your T/S% to determine your business deduction. Don't try to deduct 100% of a living room couch. If your own children only play with the item (say a toy) during day care hours, then you can still deduct 100% of the cost.
Your T/S% is determined by multiplying your Time percent by your Space percent.
Your Time percent is determined by dividing the number of hours you work in your home for business purposes by the total number of hours in the year. If you worked 11 hours a day (7am-6pm) that represents 2,860 hours a year. Divide this by the total number of hours in the year (8,760) and your Time percent would be 32.6%. You are also entitled to include all hours spent after children are gone doing business activities such as: cleaning, activity or meal preparation, record keeping, parent interviews, even reading my blog! See an upcoming blog post for more information about the Time percent.
Your Space percent is determined by dividing the number of square feet in your home that you use on a regular basis by the total number of square feet in your home. Regular use means you use it for business purposes two or three times a week. If you used 2000 of the 2200 square feet in your home regularly for your business your Space percent would be 90.9%. See an upcoming blog post for more information about the Space percent.
If your Time percent is 32.6% and your Space percent is 90.9% your T/S% is 29.63% (32.6% x 90.9%).
Enter your numbers for your T/S% on IRS Form 8829 Business Use of Your Home. As of 1/28/11 the 2010 version of this form is not yet available from the IRS. I will announce on my blog when the 2010 version has been released.
It's time for a pop quiz on the T/S%!
1) Do you have to include your basement and garage in the total square feet of your home?
2) Can you count the hours you spend at a workshop on child development sponsored by your local Child Care Resource and Referral Agency at their office in your Time percent? Answer
3) Can you count the square footage of your outdoor play area in your Space percent? Answer
4) Must you recalculate your T/S% each year? Answer
This is the first of a four part blog post:
Part I: The Time-Space Percentage Quiz
Part II: How to Calculate Your Time Percent
Part III. How to Calculate Your Space Percent
Part IV. How to Claim The Exclusive Use Rule
If you have questions about the Time-Space percentage, please contact me: [email protected]
Image credit: sevicklaw.typepad.com
Copyright 2011, Tom Copeland, www.tomcopelandblog.com