Calculating Your Own Time-Space Percentage During Covid
With the advent of COVID-19, many family child care providers have shut down for a number of months or reduced their hours. Doing so means their Time-Space Percentage will be lower.
A lower Time-Space Percentage means a reduction in the amount of house expenses you can deduct. Such expenses include property tax, mortgage interest, utilities, repairs, house insurance and house depreciation. It will also lower your deductions for shared business and personal expenses such as supplies, toys, office expenses, computer, household items and more. This loss of deductions means you will pay higher taxes this year.
This article will explain how to calculate your Time-Space Percentage under these unusual circumstances in 2020. It will focus on how to keep records to mitigate some of these higher taxes by tracking all the extra hours you work in your home because of COVID-19.
How to calculate your Time-Space Percentage in 2020
First, let’s look at the Space percent. You can count the square footage of a room in your home as business space if it is “regularly” used for your business. “Regular use” means you are using it two-three times per week for some business purpose. For a more detailed explanation see my article, “How to Calculate Your Space Percent.”
How does being shut down for weeks or months affect your Space percent in 2020?
It shouldn’t. You can still consider a room as regularly used for your business even if you were closed for several months in 2020. Child care providers who closed for summers before 2020 did not have to reduce their Space percent, so closing for several months in 2020 because of COVID-19 should not be treated differently.
What about exclusive use rooms? Some providers use rooms in their home exclusively for their business and are able to significantly increase their Time-Space Percentage. Again, shutting down for several months should not prevent you from continuing to claim a room as being used exclusively. If you do use such a room for personal purposes while you are shut down, you will not be able to claim it as exclusively business use. For more about exclusive use rooms, see my article, “How to Claim the Exclusive Use Rule.”
Calculating your Time Percent
This calculation becomes much more difficult in 2020 if you are closed for a period of time. The Time percent is based on the total number of hours you use your home for business. This includes the number of hours children are present as well as the number of hours children are not present and you are doing business activities such as cleaning, activity preparation, meal preparation, talking to parents on the phone, record keeping, time on the Internet and so on.
When you are not caring for children for several weeks or months, this will significantly reduce your Time percent. What can you do to help offset the reduction of some of these hours?
First, you want to make sure you are keeping careful records of the hours when children are present. This means keeping a daily record of the time the first child arrives to when the last child leaves. It doesn’t matter what it says in your contract about when you are open and it doesn’t matter when the parent signs out at pick-up time. You want to know when the last child walks off your property.
If your pick-up time is 6pm and the last parent walks out at 6:30 after talking with you for a half hour, you want to track that half hour. Why? Because a half hour every day is equal to one percent of the year. A one percent increase in your Time percent, multiplied by thousands of dollars of house-related expenses, adds up and is worth tracking.
Tracking hours when children are not present
This is where you want to spend time keeping careful records; it will make the biggest difference in helping to offset the loss of hours caring for children.
Before 2020, I advised providers to keep careful records for two months of the hours they worked in their home when children were not present. Then, I recommended using the average of these two months for the rest of the year. So, if you kept records showing you worked 40 hours in January and 44 hours in June, your average would be 42 hours a month x 12 months = 504 extra hours for the year. That is equal to 5.7% of the year, a significant increase in your Time percent. For detailed information on how to track these hours, see my article, “How to Track Hours When Children Aren’t Present.”
But, with the disruption in 2020, here’s how to calculate your Time percent for 2020. First, determine the average number of hours you spent on these activities for the months you are open. Ideally, you want to carefully track this for two months and use the average for those two months for all the months you were open.
Next, you want to track the hours you are doing work in your home when you were closed earlier in the year or are now closed. These hours can include the hours mentioned above, but can also include hours created by COVID-19. Such hours can be: extra cleaning, distance learning with children, talking to parents/children on the phone, talking to licensors/unemployment offices, activity preparation, record keeping, Zoom meetings, time on the Internet/Facebook, reading books, taking CDA classes, fixing up children’s rooms, filling out SBA loan applications, reading books.
If you have been closed and are now open
Look back to the time when you first closed and start adding up all the hours you spent on these activities up until the day you reopened. Make notes on a calendar about when you did these activities and how long they lasted. So, your records could say, “Monday, April 6th – home deep cleaning – 3 hours; Wednesday, April 8th – Zoom learning session with Selina Gomez – 30 minutes.”
You probably did not track these hours, so do this as soon as possible so you won’t forget what you did and when. Estimate the days and hours to the best of your ability. If you were closed for multiple months, tracking this carefully for one month may only be necessary if you can say that the hours in that month were typical of the hours you spent in the other months.
If you are closed now
Follow the same procedure as described above to record as many hours as you can before today. Now start tracking these hours on a weekly basis. At the end of each week, write down how many hours you spent on these activities. Ideally, you want to track these hours weekly until you reopen.
Example #1
Let’s say you were open January through March and closed April through August. Then you reopened from September through December. You cared for children 11 hours a day during the months you were open and worked 40 hours in January and 46 hours in October conducting business activities in your home when children were not present. You worked 20 hours in April and 26 hours in August doing business activities when children were not present.
Your home is 2,000 square feet and you used 1,800 square feet on a regular basis during the year.
Hours children present: January, February, March, September, October, November, December = 153 days x 11 hours a day = 1,683 hours.
Hours children not present during months open: 40 January hours + 46 October hours = 86 hours divided by two = 43 hours a month average x 7 months open = 301 hours
Hours children not present during months closed: 20 April hours + 26 August hours = 46 hours divided by two = 23 hours x 5 months closed = 115 hours
Total hours worked: 1,683 + 301 + 115 = 2,099
2,099 business hours divided by 8760 hours in 2020 = 24% Time percent
Space Percent: 1,800 divided by 2,000 square feet = 90%
24% Time Percent x 90% Space percent = 21.6% Time-Space Percentage
You will enter your hours and space on IRS Form 8829 Expenses for Business Use of Your Home. You can also use my Time-Space Percentage calculator which will do the math for you.
Note: If you had not tracked all the hours you worked in your home when children were not present, your Time percent would have been 1,683 hours divided by 8,760 hours = 19.2%. Your Time-Space Percentage would have been 19.2% x 90% Space = 17.3%. That 5% reduction is significant when multiplied by thousands of dollars of your house-related expenses.
When calculating your Time-Space Percentage for 2020 you will still apply your percentage to twelve months of house expenses, even if you were closed for several months.
Example #2
There is another way to calculate your Time-Space Percentage when you are closed for a month or more. To use this method, calculate your Time-Space Percentage based on the months you were open, and then apply this percentage to your house expenses for the months you were open.
For example, if you were closed from April through August, you would add up all the hours you worked for the other seven months and divide this number by the number of hours in those seven months. Then you would multiply your Time-Space Percentage by your house expenses for those seven months.
Let’s use the numbers from Example #1 to see how this would work.
We would use the same number of hours caring for children when you were open: 1,683.
We would use the same number of hours you worked in your home when children were not present during the months you were open: 301
We would not count the number of hours you worked in your home when children were not present during the months you were closed
Total number of hours worked in the year: 1,984 (1,683 + 301)
1,984 business hours divided by the number of hours in the seven months you were open or 5,160 hours = 38.4%
38.4% x 90% Space Percent = 34.6% Time-Space Percentage
Let’s assume your house expenses for the year were $12,000.
In Example #1, you would be able to deduct 21.6% of $12,000, or $2,592.
In Example #2, you would be able to deduct seven months of $12,000 or $7,000 x 34.6% or $2,422.
Conclusion: Using the method in Example #1 is more work and gives you a slightly higher deduction. The higher your house expenses and other shared business and personal expenses, the better the first method will be for you. If you were closed for less than a month, use Example #1. If you were not closed for full months, this method is easier to calculate. If before COVID-19 you normally close for three months in the summer, you can calculate your Time-Space Percentage using either of the above methods.
Tom Copeland – www.tomcopelandblog.com
Image credit: https://www.amazon.com/Ultimate-Wall-Clock-Battery-Operated/dp/B07HVN4BVQ
