The single most important thing you can do to reduce your taxes each year is to track the number of hours you work in your home on business activities when children are not present.
(These hours are used to calculate your Time-Space Percentage which is used to determine how much of your house expenses you can deduct.)
I’ve been saying this for many years in my books and at workshops and webinars.
I’ve written articles on my blog about this:
I’ve even done a video:
Yet, most providers fail to keep careful records of these hours.
They either fail to claim any of these hours or grossly under report them. This results in many providers paying too much in taxes. Two hours each week of cleaning or activity planning or meal preparation time is equal to slightly more than one percent of the year. That means you can deduct one percent more of your house expenses (property tax, mortgage interest, rent, utilities, house insurance, house repairs and house depreciation).
Since the average provider works about 13 hours a week after children are gone, this represents about 8% of the year! That’s why it’s the single most important thing you can do to reduce your taxes!
What you should do
You should carefully track these hours for at least two months each year and then use the average from these two months for the rest of the year.
If you haven’t done this yet for 2016, here’s what you should do now:
- Carefully track these hours for the month of December
- Track these hours for the month of January
- Use the average of these two months for the rest of 2016 and claim these hours on your 2016 tax return
- Track another two months of hours in 2017
IRS rules don’t require you to track a specific number of days to prove the number of hours you claim on your tax return. In my opinion, tracking two months a year is sufficient.
Even if you don’t have two months of records for 2016, one month is better than nothing. And if you get audited for 2016 it won’t be until at least 2018. By that time you should have a number of additional months of records to show a pattern that should help you.
I created a worksheet that lists the variety of work activities you might be doing in your home when children are not present. It allows you to track four weeks of activities and you can copy it to use for another month.
(This worksheet was originally prepared for Youngstar, Wisconsin’s Quality Rating and Improvement System.)
Have you track two months of your hours this year?
Tom Copeland – www.tomcopelandblog.com
Image credit: https://www.flickr.com/photos/jurgenleckie/
For more details on how to track hours and calculate your Time-Space Percentage, see my book Family Child Care Record Keeping Guide.