Questions and Answers About the Time-Space Percentage
“I am open 6am to 6pm Monday through Friday, but now parents are not coming as early as 6am. May I count hours starting at 6am?”
“Can I deduct a welcome mat 100%, or must I use my time-space%?”
“Is my playground area included in my time-space% calculation?”
These are some of the many questions I’ve received during my February 10th webinar “How to Save Money on Your 2021 Taxes.” This webinar was sponsored by KidKare.
In this article I answer the many questions asked about the Time-Space Percentage during this webinar.
KidKare is a comprehensive record keeping program that includes an accounting section that allows you to keep track of all your income and expenses. You can use it for free during a 30 day trial period. Afterwards it costs $99.00 a year. If you do sign up, please use the referral code 0659. If you do so, this will help support the work I do helping family child care providers be more successful as a business. Get more information about KidKare.
Calculating your Time-Space Percentage is the single most important number that will make the biggest difference in reducing your taxes.
The Time-Space Percentage 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 Time-Space Percentage correctly is so important!
Questions and Answers About the Time-Space Percentage
Q: What is an example of a time-space%?
A: If you use 1,900 out of 2,000 square feet in your home on a regular basis for your business, your Space Percent is 90% (1,900 divided by 2,000). If you worked 60 hours a week, 50 weeks a year, your Time Percent is 34.2% (3,000 business hours divided by 8,760 total hours in a year). 90% Space multiplied by 34.2% Time = 30.8% Time-Space Percentage.
Q: Can I deduct 100% of my utilities or must I use my Time-Space%?
A: You can only deduct 100% of an expense if it is never used in your business. Since your utilities are used by your business and your family, you must use your Time-Space%.
Q: My son and I renovated my playground. Can I count the time spent on the renovation?
A: Yes.
Q: I am open 6am to 6pm Monday through Friday, but now parents are not coming as early as 6am. May I count hours starting at 6am?
A: You can’t count hours caring for children unless the children are in your home. So, the short answer is no. However, you can count hours doing business activities in your home when children are not present. Therefore, if you are doing some other business activity between 6am and when the children do show up, you can count that time.
Q: I was closed in January because my son had COVID, but I did lots of daycare stuff during that month. Can I count those hours?
A: Yes, you can count these hours.
Q: How do I include my exterior porches, basement, attic, shed and garage in my time-space% when none of these areas are considered in the square footage of my home?
A: You must include these spaces as part of the total square feet of your home, even if they are not considered as such by your county property tax office and even if they are not licensed spaces.
Q: When I record the hours spent on business activities when children are not present in my home, do I need to track the specific days/hours of the day? Or, just that there were X number of hours in December spent shoveling/plowing for families to have access to my home?
A: You should keep careful records showing the specific days and hours you spent on activities when children are not present for at least two months every year. Use the average for these two months for the rest of the year.
Q: Is there a program to “clock in/out” for myself to help track hours spent when children are not present in my home?
A: KidKare does have the ability for you to “clock in/out” when tracking these hours.
Q: I have a new dishwasher that the daily cycle last 3 ½ hours. Can I count these hours in my time-space% calculation?
A: Not unless you stand in from of the dishwasher and watch it for 3 ½ hours.
Q: If the families in my care have a recreational weekend together and invite me along, can that time be counted, as well as the expenses associated with it (gas, food, etc.)?
A: You can’t count the time because you are not in your home. You could only count the mileage if the “primary purpose” of the trip was business. You could only count the food if you met the test of a “business meal.”
Q: Can I count the hours I spend taking an online college course to get an Early Childhood Education degree?
A: Only if this is not your first post secondary degree.
Q: If I remodel my kitchen to have more storage for daycare but will also be used personally, should I apply my time-space% to this cost?
A: Yes.
Q: If I was closed for COVID for a period of time and had exclusive use rooms and didn’t use them for personal use while I was closed, can I still count them as exclusive use rooms?
A: Yes.
Q: If we use a closet in a room, but not the rest of the room, do we count the closet space or the entire room in my time-space% calculation?
A: Count the entire room are regular use.
Q: Does the time spent doing business related activities outside of my home (such a grocery shopping or getting books from the library) count, or only the time spent in the home?
A: You can only count time spent in your home, even if the purpose of traveling outside the home is for a business activity.
Q: What can I deduct using my time-space% if I am an S-Corporation, but the corporation does not own the property used by the business?
A: You can deduct your time-space% of items you purchase that are used for both business and personal purposes.
Q: Can I count the hours I spend take business classes online after day care hours?
A: Yes.
Q: My tax preparer always has a problem with my time-space%. We have a 24-hour family child care for essential workers. Children are in care 6-7 days per week at least 18 hours per day. How would you figure my time-space%?
A: Calculate your time-space% the same way as everyone else. Your hours will be much higher than the average provider, but that’s okay. You are entitled to claim whatever hours you work. There is no upper limit on how many hours you can count. I’ve won two US Tax Court cases where the provider’s time-space% was over 90%!
Q: When I count an hour talking to a parent on the phone, can I literally just write it on a piece of paper saying I spent an hour on this date talking to a parent?
A: Yes.
Q: Can I deduct a welcome mat 100%, or must I use my time-space%?
A: Since you also use the mat for personal purposes, use your time-space%.
Q: Can my outdoor deck be included in my time-space% calculation when the deck is used by the daycare children?
A: Yes, count the deck as part of the total square feet of your home, as well as being regular use for your business.
Q: I only have heat on during the day, and not from 9pm to about 9am. Can I claim a higher time-space% for this situation?
A: You can claim an actual business use percentage, but it will be difficult for you to calculate this accurately.
Q: Do I apply my time-space% to items such as siding, ceiling fan, rugs, décor and so on? Or do I deduct 100% of the cost?
A: Use your time-space% since these items are also used personally.
Q: Is my playground area included in my time-space% calculation?
A: No. Outdoor spaces such as a playground, driveway, patio and lawn are not part of the structure of the home and are not included when calculating your time-space%.
Q: I had to replace my central air conditioner and furnace. Can I deduct some or all of it?
A: Apply your time-space%.
Q: It’s just my husband and I in our home. I care for nine children and use the majority of paper products and cleaning supplies for my business. Can I deduct 80% of these costs rather than using my time-space%?
A: Yes, you can use an actual business use percentage, but you can’t guess your business use. You must try to track the actual use.
Q: Does the number of kids I watch impact my time-space%?
A: No.
Q: What is the highest time-space% you can claim?
A: Whatever is correct for your situation. A typical time-space% would probably be between 30% and 40%. However, I’ve seen providers who have exclusive use rooms or work extra shifts or provide 24 hour care and claim a time-space% of well over 50%, including several who claimed over 90%. I’ve won IRS audits in all of these cases.
Q: I opened in March 2021 with children, but spent the month of February setting up. Do I wait to track hours in March or start in February?
A: I’d start in March.
Q: If my husband cleans the daycare part of the home while I go out of the house shopping, can I claim the hour as part of my time-space%?
A: You don’t have to be the one to do the work and count the time. So, yes you can count the time your husband does this work, even if you are not in the home.
Q: Can I count the time spent on virtual learning for continuing education?
A: Yes, assuming children are not in your home during this time.
Q: My husband also has a business in our home. His tax guy says we can only deduct house expenses for his business, so I don’t get to deduct anything. Is this true?
A: No! Your husband can claim part of your house expenses based on the portion of your home he uses exclusively for your business. You can claim the time-space% of the rooms you use regularly or exclusively. You both can’t count the same room.
Q: I am redoing my downstairs bathroom. Can I deduct 100% of the cost?
A: Only if you never use it personally.
Tom Copeland - www.tomcopelandblog.com
Image credit: https://www.lowes.com/pd/Style-Selections-Analog-Round-Indoor-Wall-Clock/3452824
