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The Time-Space Percentage Tool

This is perhaps the most important record keeping tool you can use to help you claim the proper income tax deductions for expenses associated with your home. There are several steps to creating your time-space percentage.

Step One: Read through the General Instructions on How to Calculate Your Time-Space Percentage (shown below)

Step Two: Define the actual portion of your home that is used for providing child care by utilizing the Work through the Area of Your Home Used For Your Business Worksheet.

Step Three: Define the amount of time you spend on specific activities related to your child care by working through the Tracking Hours Worked in Your Home – Monthly Log.

Step Four: Taking the information you developed in steps two and three and complete the Time-Space Percentage Calculation Worksheet.

Step One: General Instructions on How to Calculate Your Time-Space Percentage

The most important number to calculate correctly on your tax return is your Time-Space Percentage. Here’s why.

When you buy something how do you know how much of the cost you can deduct as a business expense? The answer is based on how you use the item. If you use it 100% for personal purposes (jewelry, personal clothing, hobbies, etc.) you cannot deduct any of the cost for your business. If you use it 100% for your business (baby wipes, toys, playground equipment, etc.) you can deduct 100% of the cost for your business. However, to claim something as 100% business means that you never, ever use it for personal purposes. If your own child uses a toy after day care hours the toy cannot be said to be 100% business use.

The items you buy that are used for both business and personal purposes probably represent the vast majority of your purchases. Such shared items can include:

House depreciation

House insurance

House rent

House repairs/maintenance/improvements

Land improvements (fence, patio, new driveway)

Mortgage interest

Personal property depreciation (including furniture, appliances, play equipment, computer, TV, DVD player, radio, tape recorder, piano)

Property tax

Toys/cleaning supplies/yard supplies

Utilities (gas, oil, electric, garbage, water, sewer, cable television)

As we can see, these shared items can total thousands and thousands of dollars. You must calculate your Time-Space Percentage to determine the business portion of these shared items. The higher your documented Time-Space Percentage is the higher the business deduction you will be able to claim against the federal and state income tax you would otherwise owe.

The Time-Space Percentage is based on the percentage of time your home is used for business and the percentage of space your home is used on a regular basis for your business.

The Time percent is determined by dividing the number of hours you use your home for business by the total number of hours in a year (8,760). You can count the hours the day care children are in your home from the moment the first child arrives until the last child leaves. You can also count the number of hours you are doing business activities in your home when the day care children are not present. Such hours may include cleaning, activity preparation, meal preparation, parent interviews, time on the Internet and more. See page 5 (Tracking Hours Worked in Your Home Monthly Log) for a log that can help you track these hours.

The Space percent is determined by dividing the number of square feet in your home that you use on a regular basis for your business by the total number of square feet in your home. You must include your garage and basement in the total square feet of your home. Regular use is defined as use by your business at least two or three times per week. You can count space as regular use even if day care children are not present (office, laundry room, storage areas). For a helpful worksheet to calculate your Space percent see the next section for Area of Your Home Used for Your Business Worksheet.

Enter your numbers for your Time and Space percentages on IRS Form 8829 Expenses for Business Use of Your Home. You must recalculate your Time-Space Percentage each year. For further details, see the Family Child Care Record-Keeping Guide by Tom Copeland.

Step Two: Area of Your Home Used for Your Business—Worksheet

Use this worksheet to help you calculate the business Space Percent of your home.

Following are the definitions you’ll need to complete the worksheet:

Room - List all the rooms in your home, including your garage and basement, under this column. Do not include outside areas such as a lawn, patio, backyard play area or shed.

Square Feet - List the total square feet of each room in column A. Include any closets as part of the room. Square feet can be measured by multiplying the length of the room by the width of the room.

Square Feet Used 100% for Business - Some providers have rooms that are used exclusively for their business. Such rooms could be a children’s play area, crib room, or bathroom. Put the square footage of these rooms under the column B. Do not list any square feet under this column unless the room was never, ever used for personal purposes; even once a year. This is a strict rule. If your basement area is one open room and half of it is used exclusively for your business and the other half is used regularly for your business (furnace area, washer and dryer) break the room into two rooms: a regular use room and a 100% business use room. You do not need to build a wall separating these areas. Simply make a drawing of the room and identify which area is which.

Square Feet Used Regularly for Business - List square feet for rooms used on a regular basis for your business in column C. Regular use means the room was used approximately three or four times a week for your business. A room used once a month for business is only occasionally used for business, not regularly. It’s not necessary for the room to be used everyday or for many hours in a day. A bedroom used for 30 minutes a day for naps for day care children is considered regularly used for business. A garage used to store bicycles, a garbage can, household tools, and a car used for business would be considered regularly used for business.

It is not necessary for children to be in a room for it to be considered regularly used. A provider who has a desk and file cabinets in her bedroom that she uses several times a week for business record keeping can count her bedroom as regular business use even if day care children never enter the room. A basement that is used regularly for business (laundry area, furnace area, storage of general household items) can be counted even if state child care licensing rules do not allow children to go into the basement. It is not unusual for a provider to claim 100% of her rooms used regularly for business.

Square Feet Not Used Regularly for Business - If you do not use a room regularly for your business and it’s not exclusively used for your business enter the square feet under column D. Such rooms might be your own children’s bedrooms, if they are never used by your business or the bathroom off your own bedroom that is not used by day care children.

For more information on calculating your Space Percent see the Family Child Care Record-Keeping Guide by Tom Copeland.

Area of Your Home Used for Your Business—Worksheet

|Room |Square Feet |Square Feet Used 100% for|Square Feet Used |Square Feet Not Used |

| | |Business |Regularly for Business |Regularly for Business |

| | | | | |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|________________ |________ |__________ |__________ |__________ |

|Total Square Feet |______(A) |________(B) |________(C) |________(D) |

Step Three:

Tracking Hours Worked in Your Home—Monthly Log

Providers must keep an accurate record of all the hours they work in their home. Doing so is one of the most significant ways to reduce your taxes.

Most providers keep attendance records showing when children are present. You should total all the hours children are present in your home for the year. Count from the moment the first child arrives in your home until the last child leaves. If a child stays overnight count all of this time. You cannot count time your contract says you are open if no children are actually present in your home. Enter these hours in the Summary of Hours Worked in Your Home on the line “Total number of hours children present in your home in a year.”

The monthly log should be used to track all hours you and others work in your home when the children in your care are not present. You can only count hours spent on business activities while in your home. If you spend two hours on Saturday cleaning your living room, kitchen, and bathroom only count the cleaning time associated with your business. Time spent shopping, attending training workshops, or driving children home does not count. If you conduct one of the activities in this log during time when children are present in your home (you are cleaning while the children are napping) do not count this time. You do not need to be the one working all of the hours you are tracking with this log. If someone else in your family is conducting a business activity (cleaning while you are shopping) you can count this time.

Enter the number of hours (or partial hours) you work on each activity in this log each week. Then total the number of hours worked each week in the month to get a total number of hours worked for the entire month. It is recommended that you keep careful records of these hours for at least two months each year.

When you have completed tracking two months of hours worked in the following two logs enter the totals onto the Summary of Hours Worked in Your Home Worksheet on page 8.

For more information on calculating the hours you work in your home see the Family Child Care Record Keeping Guide by Tom Copeland.

Don’t forget—if you employ others in your business, there will likely be additional record keeping necessary, including collecting and depositing employment taxes, paying state and federal unemployment taxes, obtaining workers’ compensation insurance etc. These matters are not covered here, but you can get further information and a downloadable publication from the State of Minnesota, Department of Employment and Economic Development, “An Employer’s Guide to Employment Law Issues in Minnesota”.

|Tracking Hours Worked in Your Home—Monthly Log |

| |

|Month______________________ Year___________ |

| |

|Activity |Week #1 |Week #2 |Week #3 |Week #4 |

|Association Activities |__________ |__________ |__________ |__________ |

|Business phone calls |__________ |__________ |__________ |__________ |

|Cleaning |__________ |__________ |__________ |__________ |

|Computer work |__________ |__________ |__________ |__________ |

|Email/Internet activity |__________ |__________ |__________ |__________ |

|Food Program paperwork |__________ |__________ |__________ |__________ |

|Meal preparation |__________ |__________ |__________ |__________ |

|Parent Interview |__________ |__________ |__________ |__________ |

|Planning menus/preparing Shopping lists |__________ |__________ |__________ |__________ |

|Planning/preparing activities |__________ |__________ |__________ |__________ |

|Record Keeping |__________ |__________ |__________ |__________ |

|Other_________________ |__________ |__________ |__________ |__________ |

|Other_________________ |__________ |__________ |__________ |__________ |

| | | | | |

|Total weekly hours worked |__________ |__________ |__________ |__________ |

| | | | | |

|Total hours worked this month |________(A) | | | |

| |

|Tracking Hours Worked in Your Home – Monthly Log |

| |

|Month______________________ Year___________ |

|Activity |Week #1 |Week #2 |Week #3 |Week #4 |

|Association Activities |__________ |__________ |__________ |__________ |

|Business phone calls |__________ |__________ |__________ |__________ |

|Cleaning |__________ |__________ |__________ |__________ |

|Computer work |__________ |__________ |__________ |__________ |

|Email/Internet activity |__________ |__________ |__________ |__________ |

|Food Program paperwork |__________ |__________ |__________ |__________ |

|Meal preparation |__________ |__________ |__________ |__________ |

|Parent Interview |__________ |__________ |__________ |__________ |

|Planning menus/preparing Shopping lists |__________ |__________ |__________ |__________ |

|Planning/preparing activities |__________ |__________ |__________ |__________ |

|Record Keeping |__________ |__________ |__________ |__________ |

|Other_________________ |__________ |__________ |__________ |__________ |

|Other_________________ |__________ |__________ |__________ |__________ |

| | | | | |

|Total weekly hours worked |__________ |__________ |__________ |__________ |

| | | | | |

|Total hours worked this month |________(B) | | | |

Summary of Hours Worked in Your Home Worksheet

Hours worked in month #1 (A) _________________

Hours worked in month #2 (B) _________________

Total number of hours for 2 months (A + B) __________________

Average number of hours worked in a month (A +B divided by 2) ______________

Average number of hours worked in a month x 12 (12 months) ____________________ #1

Total number of hours children present in your home in a year _______________ #2

Total of all hours worked in the year (# 1 + #2) _____________________

Enter this total onto the Time-Space Percentage Calculation Worksheet

Step Four: Time-Space Percentage Calculation Worksheet

The last step is to bring all of your information together using one of the following tables. To complete this worksheet you must first fill out the Area of Your Home Used For Your Business Worksheet and the Tracking Hours Worked in Your Home Monthly Log.

If you do not have any square feet used 100% for your business (see your Area of Your Home Used for Your Business Worksheet) then fill out Table I below. If you do have square feet used 100% for your business fill out Table II below.

Table I – Home in which there is no square feet used 100% for your business

Time Percentage

Enter the number from the bottom of the Summary of Hours Worked in Your Home.

Total of all hours worked in the year _____________

Total of all hours worked in the year divided by 8760 = _____________. This represents your Time percentage (8760 hours are the total number of hours in a year.)

Space Percentage

Enter the numbers from the bottom of the Area of Your Home Used For Your Business Worksheet.

Number of square feet used regularly for your business (Column C) __________________

Number of total square feet in your home (Column A) ______________________

C divided by A = _______________________ This is your Space percentage

Time-Space Percentage

Time percentage ______ X Space percentage ________ = Time-Space Percentage ________

Table II – Home in which there is square feet used 100% for your business

Time Percentage

Enter the number from the bottom of the Summary of Hours Worked in Your Home.

Total of all hours worked in the year _____________

Total of all hours worked in the year divided by 8760 = _____________. This represents your Time percentage. (8760 are the total number of hours in a year.)

Space Percentage

Enter the numbers from the bottom of the Area of Your Home Used For Your Business Worksheet.

Number of square feet used 100% for your business (Column B) __________________

Number of total square feet in your home (Column A) ______________________

C divided by A = _______________________ This is your Space percentage for the 100% area (#1)

Number of square feet used regularly for your business (Column C) __________________

Number of total square feet in your home (Column A) ______________________

C divided by A = _______________________ This is your Space percentage for the regular use area (#2)

Time-Space Percentage

#2 ________ X Time percentage _______ = Time-Space Percentage for regular use area ____________ (#3)

#1 ___________ + #3 _________ = Your Time-Space Percentage

By knowing your time space percentage you can reflect the accurate amount to submit to your tax accountant for your shared personal and business expenses.

Disclaimer

Printed materials provided by First Children’s Finance do not constitute legal, accounting, tax or finance advice or any other professional services for individual readers. Readers seeking professional advice about specific aspects of their business should consult a member of our staff or other qualified professional.

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