| A day care provider's business percentage on Line 7 of Form 8829, Expenses for Business Use of Your Home, determines how much of her home expenses can be treated as a business tax deduction. It is often called the time/space percentage, because of the unique way the business percentage is calculated for family child care businesses, with a time component and a space component. Boosting your time/space percentage can mean money in your pocket. The main way to increase your percentage is by keeping good track of time worked in the home and identifying all space used for business purposes. Having an exclusive-use child care room – used 100% of the time for business purposes all year – can significantly increase your business percentage. ... Time Tips: Hours entered on Line 4 of Form 8829 should include all hours worked in the home by yourself or others, not just hours when child care children are present. You most likely work many hours in the home before children arrive, after they leave, and on weekends. Keep track of time spent on business-related cleaning (it's probably business related if you wouldn't be doing it otherwise), meal and activity planning, record keeping, talking to parents (in person or over the phone), etc. Keep a daily log with "Time In" and "Time Out" entries for each day care child. If keeping an exact log of time worked outside of your regular hours is hard to do all year, then do it for AT LEAST TWO MONTHS EVERY YEAR. Count time your spouse or other helpers work outside of regular hours, too, but not if they overlap your own. In other words, don't count any work hours twice. If you are planning meals for an hour and your spouse is doing business bookkeeping at the same time, count that hour only once. The goal is to determine how many hours your home was used for business purposes during the year. Don’t count business time away from home. This percentage is all about use of the home. (Count your auto miles when going out for business purposes.) Space Tips: Many child care providers use their entire home regularly for child care purposes. “Regular use” space can include playrooms, nap rooms, storage rooms (if accessed regularly), office space, etc., in addition to the kitchen, common rooms, bathrooms and garage. (Yes, count your garage. You most likely use it for business storage, laundry, home and yard maintenance tools, your business vehicle, etc.) Do not count yard space, however. Only count space under your roof. You can count a deck attached to your home, but not a patio. Measure your rooms and draw a simple floor plan. Don't rely on historical square footage which is often inaccurate and not properly documented. Keep the floor plan in your records, in case you ever have to show it to an IRS auditor. FORM 8829 BUSINESS PERCENTAGE CALCULATION EXAMPLE: Karen has a 2000 square foot home. She uses the entire home regularly for her day care business, except for the 200 square foot master bedroom. This year she was open from 6am to 6pm, Monday through Friday. She or her husband worked an additional 255 hours during the year before opening, after closing, and on weekends. She took a week vacation and eight holidays. Space Percentage Calculation 2,000 sq. ft. total home area [minus] 200 sq. ft. master bedroom [equals] 1,800 sq. ft. used regularly for child care business purposes 1,800 sq. ft. [divided by] 2,000 sq. ft. = .9000 = 90.00% (space percentage) Time Percentage Calculation My time calculation starts with the number of weekdays in a given year, which I determine by looking at a calendar. The time calculation can also be done starting with total days in a year (365 or 366), but you have to watch how the weekends fall to accurately count your regular hours, so I just narrow it down to weekdays at the start. (If you do child care on weekends, this won't work, of course.) 261 total weekdays in the year [minus] 13 days off (5 weekday vacation days and 8 holidays) = 248 total days worked 248 days worked x 12 hours per day = 2,976 regular hours worked 2,976 regular hours worked [plus] 255 additional hours worked = 3,231 total hours worked 3,231 total hours worked / 8,760 total hours in the year = .3688 = 36.88% (time percentage) Overall Business Percentage for Form 8829 .3688 (time percentage) [times] .9000 (space percentage) = .3319 = 33.19% (time/space business percentage) I also have an example of this same calculation for a provider with an exclusive use playroom. |
