The Time-Space 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.
* Time-Space formula:

Time Percent

# hours home
used for business
Total # hours
in a year

X

Space Percent

# square feet of home
used regularly for business
Total # square percentage
feet in home

=

Time-Space

Time Percent 

Your Time Percent is calculated by adding up the number of hours you are using your home for business purposes and dividing this number by the total number of hours in the year. There are 8,760 hours in a year. In determining the number of hours your home is used for your business it is helpful to divide your business hours into two categories: working hours when children are present in your home and hours when children are not present in your home but you are engaged in business activities. Add together both categories of time to obtain your Time Percent.

Hours when children are present in your home

Providers can count all of the hours children are in their home, from the moment the first child arrives until the last child leaves. If your contract says you care for children from 7am to 5pm (10 hours), but children occasionally arrive early or leave early, you need not adjust your working time of 10 hours. But if the last parent always is 15-30 minutes late in picking up her child, you should count these extra minutes. An extra 30 minutes a day is equal to an additional 1.5% of time a year. It doesn't matter if you are not paid for these extra minutes.

If your contract says that you are open from 7am to 5pm, but the first child never arrives until 7:30am, you cannot count the time between 7am and 7:30am. It's not important when you are available for care, but rather when the children are actually present in your care. If you are doing business activities during this first 30 minutes, then you could count the time. If one child stays an extra two hours at the end of the day (the parent forgot where you lived!) then you can count this time. If the child stays overnight, you can count this time.

Hours when children are not present in your home

Providers can count hours spent on the following business activities when children are not present in your home:

Cleaning your home for your business

Preparing meals for the children in your care

Planning and preparing activities for your business

Keeping business records

Planning menus and preparing shopping lists

Conducting interviews with prospective parents

Talking to parents on the phone about business

Reading magazines to find recipes

Working at your computer on business activities (including time on the Internet)

Any other activity that you do in your home for your business

These hours can include times spent by someone other than yourself doing business activities. Your husband or your own child may spend time cleaning your home or you may hire a cleaning person to come into your home. When determining your cleaning hours, only count time spent cleaning up messes caused by your business. If you clean your bathrooms and kitchen on the weekend, only count part of the time because some of the mess was created by your family.

Business Hours Away from Home

Do not count time spent away from your home, even if you are engaged in a business activity. This includes trips to training workshops, transporting children to school, or shopping. The reason that these types of hours do not count is because you are not using your home for business purposes. Do not count hours cleaning, preparing meals, etc. if children are in your home because you cannot count time twice. If children are sleeping do something personal (read a book, relax), not business related.

How to keep track of your hour

Ideally, providers should keep a daily record of all the hours they worked. As a practical matter, most providers do a pretty good job of keeping track of the hours children are in their home (attendance records), but most do a poor job of tracking business hours once the children leave. As a minimum, try to keep careful records for at least two months each year of the hours you spend on business activities once children have left your home. Mark these hours on a calendar and calculate an average number of hours you work in a week. Use this average and multiply it by the total number of weeks you cared for children in the year.

What is a typical Time Percent?

According to national survey, providers care for children about 11 hours a day or 55 hours a week. This represents 33% of the year. Another national survey found that providers worked an average of 14 hours per week on business activities after the children were gone. This represents another 8%, or a total of 41%. In my experience, most providers have a Time Percent of between 35% and 45%. It will be higher if you are caring for children into the evening or overnight.

It is to your great financial benefit to carefully and accurately calculated your Time 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. If you have one or more rooms that are used exclusively for your business, you should calculate your Time-Space Percentage differently.  Click here, to see how.

Note: Instead of using the Time-Space percentage, providers may allocate business use for the above items by calculating an actual business use percentage, if they can document their calculation.

Exclusive Use Rooms

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.

Family child care providers who use one or more rooms in their home exclusively for their business should use this formula:

 

   Space Percent of Exclusive use rooms

+ Time-Space Percentage of rest of home

   Time-Space Percentage of entire home


Let’s use an example of a home with 2,000 square feet: one room of 100 square feet used 100% for business and the remaining 1,900 square feet used regularly for business use and personal use. The Time percent is 40%. 

Step One:     Divide the square feet of the exclusive use space by the total square feet.

200 =           10% Space for exclusive use space 2,000

Step Two:      Divide the square feet of the space used for regular business use by the total square feet.

1,800 =          90% Space for rest of home 2,000

 Step Three:      Multiply the percent from Step Two by the Time percent.

90% x 40% =   36% Time-Space Percentage for rest of home

 Step Four:        Add the percent from Step One with the percent from Step Three.

10% + 36% =   46% Time-Space Percentage for entire home

Notice that without this formula for an exclusive use room the Time-Space percentage would have been only 40% (40% Time x 100% Space). See instructions to Form 8829 Expenses for Business Use of Your Home.

Photo Credit: Judy

Photo Credit: Madgerly

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