The Space Percentage

August 2005

Exclusive Use Rule 

Read article "The Time Percentage"

 

The most important number in a family child care provider's business is her Time-Space Percentage. This percentage represents the proportion of expenses for items that are used by both your business and your family that you can deduct on your tax return. These expenses include house related costs (property tax, mortgage interest, utilities, house repairs, house insurance, house depreciation, and home improvements) as well as other items such as household supplies, furniture, appliances, shared toys, and so on.

  

These expenses can easily total thousands of dollars so it is vital that providers spend the necessary time to calculate their Time-Space Percentage correctly. This percentage is determined by calculating your Time Percent and then multiplying it by your Space Percent.

 

Space Percent

 

Your Space Percent is calculated by dividing the number of square feet your home is used regularly for 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. The living room, dining room, kitchen, bathroom, entryway, playroom, and pantry are obviously regularly used in most providers' businesses. A bedroom used by children for naps for 30 minutes a day is considered regular use. A room doesn't have to be used 10 hours a day before it can be considered regular use. Using a room 2-3 times a week for your business would probably make this room regular use.

 

Children don't have to be in the room for the room to be considered as regular use. A laundry room, storage room, or office can be regularly used for business. Most providers would count their basement as regular use if it contained a furnace area, laundry room, storage area, or playroom. If a basement room contained items used to maintain the home (tools, supplies, food, garden equipment, toys, workshop items, etc.) it can probably be counted as regular use.

 

A garage should be considered as part of the total square feet of the home, even if it is detached from the home. Most providers use their garage on a regular basis for their business as storage for a car, tools, bikes, garbage, recycling, supplies, etc.

 

Rooms that would not be considered as regular use in your business would be a bedroom never used by the children (a master bedroom or your teenage daughter's bedroom) or a room such as a personal bathroom that children never use.

 

Many providers count all the rooms in their home as regular use and therefore their Space Percent is 100%. Do not be afraid to claim a 100% Space Percent.

 

Time-Space Percentage

 

After calculating your Time Percent and your Space Percent, multiply them together to get your Time-Space Percentage. Most providers should have a Time-Space Percentage of somewhere between 30%-45%. You need to recalculate this percentage each year as your hours may change and you may use rooms differently.

  

There is a special rule that family child care providers can use that will increase their Time-Space Percentage. If you have one or more rooms that are used exclusively for your business, you should calculate your Time-Space Percentage differently. An exclusive use room is a room that is never, ever used personally. If your own children go into this room after the day care children have left or if you have a New Year's Eve party in this room, it is not an exclusive use room. This is a strict rule, so don't try to use it if you can't honestly say that you never use it personally.

 

Exclusive Use Rule

  1. Here's how to calculate your Time-Space Percentage using the exclusive use rule. Let's say your home is 2,000 square feet and your exclusive use room is 200 square feet. Let's say that your Time Percent is 40%:
  2. Calculate the Time-Space Percentage of the exclusive use room: 200 square feet divided by 2,000 square feet = 10%
    10% Space Percent x 100% Time Percent = 10% Time-Space Percentage
    Note: The Time Percent is 100% because the room is never used for personal purposes.
  3. Calculate the Time-Space Percentage of the rest of the home:
    1,800 square feet regularly used divided by 2,000 square feet = 90%
    90% Space Percent x 40% Time Percent = 36% Time-Space Percentage
    Add the two Time-Space Percentages together:
    10% + 36% = 46% Time-Space Percentage
    Note: if this provider had used the 200 square foot room only regularly for her business, her Time-Space Percentage would have been 40% (100% Space x 40% Time).

This handout was produced by Think Small (www.thinksmall.org).

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