The actual formula to calculate time-space percentage tracking is straightforward:
Time Percent * Space Percent = Time-Space Percentage
You take the Time Percent (total # of business hours at home / by the total # of hours in a year) and multiply it by the Space Percent (total # square feet of home used for business / by square footage of the home).
Time-space percentage is the basic endpoint for your taxes… but there are ways to accurately maximize that number (and, thus, maximize your income).
For instance, did you know that having an area of your home solely dedicated to childcare significantly boosts your Time-Space percentage? The higher your percentage, the higher your deductions can be for taxes. Home providers are the only group that can take advantage of this on taxes (Form 8829). If you have a space solely dedicated to your childcare, the formula becomes a little more complex:
Exclusive Space Percent + Time-Space Percentage of Every Other Room = Time-Space Percentage
It may look confusing, but do not fret! ELV’s new time-space percentage tracking features will help you efficiently track both your Time Percent and your Space Percent. This article will be the first of several installments to help you navigate the concept for accurate tax filing purposes.
Today, we are focusing on how you designate your rooms in CORE – Exclusive Use, Regular Use, and No Use.
- Exclusive Use: This is a room used solely (or “exclusively”) for the purposes of your business. However, since it is exclusive, that means you or your family never use it for personal use – and by tax law, that means it is not even used once for non-business things during the year. Here are some examples of Exclusive Use:
- A playroom in the basement that is only ever used by the children in your care (and, if you have your own children in your care, that is only used by them during child care hours).
- A small office where all documentation for your business is stored and where your work computer is housed. This space is not used for your partner’s work or children’s remote school or for your hobbies. It is always and only used for your business.
- Regular Use: This is a room used at least twice a week (or “regularly”) for the purposes of your business. We often see an underreporting of rooms in the regular use category. Many do not realize how many rooms can qualify for this designation! Here are some examples people often forget:
- The laundry room where you wash the clothes and towels used by children in your care
- The bathroom (or bathrooms) that children use throughout the day
- Spaces used for storage: the fixed structure shed in your backyard where toys are stored to be brought out during outside play, the master bedroom where you store your work laptop, garages, basements or closets used for supply storage. Even if children from the business are not allowed in the room, but the closet or room holds materials for your business, you can designate it as regular use.
- No Use: Rooms that are only rarely (less than twice a week) or never used for your business.
Next time, we will look over how to maximize your Time Percent via staff tracking in CORE.
This article and series was made possible by ELV’s partnership with the Wisconsin Early Education Shared Services Network (WEESSN), a program of the Wisconsin Early Childhood Association. We owe much of the expertise above to Kelly Matthews, a former family child care home provider and current Co-Director of WEESSN.
