"Must I count the space in my basem*nt and garage?" "Can I count my downstairs room if licensing rules prohibit me from having day care children downstairs?" "Can I count my own child's bedroom if he takes a nap in it everyday but day care children do not enter the room?"
What are these family child care providers asking about? The Time-Space Percentage (T/S%) is the single most important number for you to accurately calculate because it will make the biggest difference in reducing your taxes.
Your T/S% represents the portion of your home that is used for business purposes. You will use it to determine how much of the thousands of dollars of your house-related expenses you can deduct.
To calculate your T/S%, you must first calculate your Time Percent and then your Space Percent.
The Space Percent
Your Space Percent is calculated by dividing the number of square feet in your home used on a regular basis for your business by the total number of square feet in your home.
Look at each room in your home and ask, "Am I using this room on a regular basis for my business?" If the answer is yes, count all the square feet in the room; if no, don't count any of the square feet. Your living room, dining room, kitchen, bathroom, entryway, playroom, and pantry are probably all regularly used in your business. A bedroom used by children for naps 30 minutes each day is considered regular use. Using a room 2-3 times a week is probably regular use.
You must count your basem*nt and garage as part of the total square feet of your home. If your state licensing rules prohibit you from bringing children into your basem*nt, you may still be able to count the basem*nt space as regular use if it contains a furnace area, laundry room, or storage area for household items used in your business (tools, household supplies, etc.). Children don't have to be in a room for the room to be considered as regular use.
If you use your garage to store a car used for your business, tools, bikes, garbage can, recycling, garden supplies, etc., you could consider your garage as regular use.
Rooms that would not be considered as regular use would be a bedroom never used by the day care children, a personal bathroom never used by the children, or a gun room.
Most providers count all the rooms in their home as regular use and therefore their Space Percent would be 100%. Don't be afraid to claim a 100% Space Percent!
After calculating your Space Percent, multiply it by your Time Percent to get your T/S%. Most providers who work full-time, year round will probably have a T/S% of between 30-45%. You must recalculate your T/S% each year.
Enter your Space Percent on Part I ofIRS Form 8829 Expenses for Business Use of Your Home.
I have answered a lot of questions about the T/S% at thedaycare.com child care forum.
Tom Copeland - www.tomcopelandblog.com
Image credit: https://www.corpnet.com/blog/how-to-start-a-daycare-business/
For a comprehensive discussion of the T/S% see my bookFamily Child Care Record-Keeping Guide.
