Deducting your expenses as a home-based childcare provider can save you a lot of money at tax time. Unfortunately, more than 70% of providers are missing out on deductions and savings, according to this article.
The reason is many home daycares don’t calculate their Time-Space Percentage accurately. Your Time-Space Percentage (T/S%) is the single most important number to accurately calculate for your tax return, as our now-retired friend and business expert Tom Copeland puts it.
Your T/S% represents the proportion of your home that is used for business purposes. And it is the key to unlocking how much of your shared business and personal expenses can be deducted on your tax return, such as home and land improvements, depreciation, mortgage interest, utilities, rent, cleaning supplies, toys, and much more.
Thanks to Tom, we were able to draw insights from his wildly popular blog to bring you this guide. So let’s dive in!
Just looking at the name, you know it has something to do with your Time and your Space. It does. When you multiply your Time Percent and your Space Percent, you get your T/S%.
Here’s the formula:
Exclusive Space Percent + (Regular Use Area Space Percent X Time Percent) = Time/Space Percent
As you can see, before you can figure out your T/S%, you need to determine your Time and Space percentages. Once you have those, your T/S% is a piece of cake.
Do you have a room or space in your home that is used exclusively for your daycare? If not, use ‘0’ in the equation. You can also skip to Step 1 – Determine Your Time Percent.
If you do have a room or any space in your house that is used exclusively for your home daycare and never, not even once, used by you or your family for personal reasons, you can take advantage of the exclusive use room rule to increase your T/S%.
Your Time Percent represents the percentage of hours you work in a year.
Your Regular Use Space Percent represents the number of square feet in your home used on a regular basis for business.
This is the easy part. Take your Time Percent and multiply it by your Space Percent. If you had Exclusive Space Percent, add it to the result like this:
While your T/S% is the most important calculation for your taxes, having an accurate and complete record of your home expenses comes in a close second. Not only will it help you maximize your tax deductions, it will also help you budget for the future.
A convenient way to keep track of your expenses is to use software designed especially for home childcare businesses. With KidKare Accounting, for example, you can track all your expenses, calculate your T/S%, manage invoices and income, and offer families a way to pay online automatically with credit cards. To learn more and start a free, 30- day trial, click here.
Tom Copeland’s book Family Child Care Record Keeping Guide includes a comprehensive chapter on how to calculate your T/S%.
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