Questions and Answers About the Time-Space Percentage - Part I
Are you calculating your Time-Space Percentage correctly? Are you counting all the hours you work in your home when children are not present?
I recently delivered a webinar on “The Importance of Tracking Hours When Children are Not Present.”
The webinar demonstrated how to calculate your Time-Space Percentage using KidKare.
KidKare is the most comprehensive online record keeping system designed specifically for family child care providers. You can use it for free for 30 days to see how the accounting system can help you track income and expenses, issue parent invoices and generate numerous end-of-year reports that will save you time and money on your tax return. After 30 days, the fee is $9.95 per month. If you do decide to purchase a KidKare subscription, I ask that you use the referral code 0659 to support the work I do helping providers be more successful in their business.
Two Months
When calculating your Time-Space Percentage you can count the number of hours children are present in your home, as well as the number of hours you work in your home when children are not present. It’s the latter number that most providers are under counting. You can count hours spent cleaning, activity preparation, meal preparation, record keeping, time on the Internet, parent phone calls and so on.
In my webinar I described the best way to track these other hours by keeping careful records in KidKare or a calendar or some other record for two months. Then use the average of these two months for the rest of the year. This is the most important thing you can do to reduce your taxes!
The webinar also briefly discusses the exclusive use room rule.
There were many questions asked during the webinar. Here’s my answers.
Time Percent
Q: Can I count time spent on these activities when children are not present?
Working on my business taxes?
Taking or teaching professional development classes online?
Meal preparation when children are not present?
Rearranging once a week for dramatic play?
Keeping track of how many hours I am working each week?
Making activity videos to give to the children?
Crocheting blankets for daycare children’s Christmas gifts?
Decorating the child care room for the holidays?
Depositing checks remotely from home?
Organizing a business pantry, repairing daycare tables and distancing screens?
A: Yes, to all of the above!
Q: What hours can I count doing laundry?
A: You can count the time it takes you to gather up the items to wash, the time it takes you to put in in the washer, take it out of the washer and put it in the dryer, and then take it out of the dryer and put the items away.
Q: I have a garden that the kids can’t access at this time, but the children eat the vegetables. How can I count time for this?
A: You can’t count all of the time working in your garden because your family eats the vegetables as well. Count some of the time, based on how much of the vegetables are eaten by the children.
Q: My husband and I remodeled our kitchen ourselves over the weekends for six months. Can we count those hours?
A: Probably not, because you would have done the same amount of work if you weren’t in business.
Q: Is it okay to say that I’m open 24 hours for income tax purposes? Or is there a limit for the IRS?
A: There is no upper limit on how many hours you can count. You can’t count hours unless a child is in your home, or you are doing some business activity when children are not present. In other words, you can’t say you are open for 24 hours and automatically count 24 hours.
Q: Can I count time spent grocery shopping?
A: You can’t count time spent away from your home. This includes grocery shopping, going to business training classes, picking up school age children or going to the bank. You can count the time preparing a shopping list, doing online shopping and unloading the groceries in your home. You can count the mileage to these destinations if the primary purpose of the trip is business.
Q: I do my online grocery shopping during nap time. Can I count that time?
A: No, because children are in your home and you are already counting that time.
Q: Can I count the pick-up and drop off time for kids?
A: You can count the moment the first child arrives until the last child leaves.
Q: I was closed for quarantine because of COVID for my husband and then myself. I cannot count these hours, correct?
A: That’s correct. You could only count hours when you are quarantined if you are doing some business activity in your home.
Q: My granddaughter is one of my daycare children. If I take her overnight during the week, can I count those hours?
A: Only if you are being paid for those hours at a reasonable rate you would charge any other parents to care for their child overnight.
Q: My own child counts as part of my licensed capacity. If I open at 6:30am and he is the only one present until 7am, can I count this half hour?
A: No. You can’t count time caring for your own child.
Q: My license is from 6am to midnight. All my children are gone by 5:30pm. I start cleaning at about 5:45pm. Can I start counting those hours?
A: You can count the hours children are present up until 5:30pm. At 5:45pm you can start counting hours you are spending cleaning.
Q: Can I count the time spent painting a room used for child care, remodeling our kitchen, painting the outside of your home and window washing?
A: You could count all of the time spent painting a room used exclusively for your business. But you couldn’t count time spent painting a room also used for personal purposes, or remodeling your kitchen, or painting the outside of your home or window washing. You can only count time if you would not be doing the activity if you weren’t in business.
Q: Can I count mowing my lawn or shoveling snow?
A: You can’t count mowing your lawn because you would still be mowing your lawn if you weren’t in business. You could count time spent shoveling snow before the parents arrive in the morning because you wouldn’t be shoveling snow at that hour if you were not in business. I would also not count the time spent by a gardener.
Q: I’m closed Thanksgiving and the day after. Should I be subtracting these hours?
A: Yes. You can’t count hours you are closed unless you are doing some business activity during these days.
Q: If my husband and I are putting together a play area on the weekends, can we count both of our hours?
A: You can’t count time twice. So, if you and your husband work together for one hour, you can only count one hour, not two hours.
Q: Can I count time spent at a childcare training or conference outside my home?
A: No, because you are not using your home then.
Q: Can I go back to January in the KidKare software program to input the exact hours when children were not present?
A: Yes.
Q: Is logging kids for meals into the KidKare menu program enough to prove who was in care on that day?
A: Yes.
Q: At what percent in the Time-Space calculation are you more likely to get audited?
A: Do not worry about this. I’ve won audits where the provider had a Time-Space Percentage of 93%! If you have the records to show the hours you used your home for your business, then claim them and don’t worry about being audited. I can’t tell you if there is a certain number that would cause an audit.
Q: Can I count hours before I started caring for children, preparing paperwork and so on?
A: In general, it’s best to start counting hours once you start caring for children.
Q: I’ve been tracking my hours on Google calendar. Is that acceptable to the IRS?
A: Yes. You can track hours anywhere: on the KidKare software program, on the Redleaf Calendar Keeper, on a spreadsheet, on any piece of paper, or on the Google calendar.
Q: What line on my tax return can I look at to make sure my tax preparer has counted all of my hours?
A: Form 8829 Expenses for Business Use of Your Home, line 4. That’s the line where should appear the total number of hours you worked in the year, including the number of hours children were present in your home and the number of hours children were not present, but you were still using your home for some business activity.
Q: If I have proof of my hours and my tax preparer didn’t put them on line 4, what should I do?
A: For your current tax return, insist that your tax preparer include all your hours on this line. If they refuse, look for another tax preparer. If he/she didn’t enter all your hours on your tax return in previous years, ask the person to amend your return and not charge you for doing so.
Q: Can I count the time and cost of my floor cleaner?
A: You couldn’t count the time unless the time was spent cleaning the floor in an exclusive use room. You could count the business portion of the cost.
Q: If you are open and ready to care for children, but no children have shown up yet, can you count the time before they arrive?
A: Not unless you are doing some business activity before they show up.
Q: Can I count the time if I clean for one hour and take a class for another hour in the afternoon?
A: As long as children are not present during these times, yes you can count the time.
Q: Can I count hours after the children leave for school?
A: Only if you are doing some business activity after they leave.
Q: How would you calculate the hours if you are open 24 hours a day, seven days a week with children?
A: Keep careful records of all the hours children are present through attendance records. Go ahead and count the time. I’ve represented providers in your situation where we’ve won a 93% Time-Space Percentage!
Q: I am legally unlicensed and providing care for one child prior to being licensed. Can I count the time caring for only one child?
A: Yes. A legally unlicensed provider can calculate her Time-Space Percentage in the same way as if she was licensed.
Q: I have daycare families over for a get together during an evening or weekend. Can I count this time?
A: Yes. Your home is being used for business purposes whenever daycare families are in your home.
Q: Can I count hours if I go on vacation and leave my certified assistant to operate during our regular hours in my home?
A: Yes. You don’t have to be doing work in your home to be able to count the hours.
Q: If I have several times during the day to take children to and from school and I’m gone for ten minutes, should I subtract this time? Should I subtract time when we go on a field trip?
A: I wouldn’t subtract this time because the amount of time is so small.
Q: There are times we care for children 24/7 when their military parents are deployed for days or weeks. Can we count 24 hours during those times?
A: Yes.
Q: Do we have to pay more money in taxes when we claim more hours?
A: No! It’s the opposite. The more hours you claim, the higher your Time-Space Percentage. The higher your Time-Space Percentage the greater your deductions, and the lower your taxes!
Q: It takes me ten hours to make quilts for each child and my tax person said I had too many hours. He said claiming these hours would flag the IRS. True?
A: No, it’s not too many hours. It’s reasonable to claim all the hours making quilts for the children. An extra 50-100 hours will not flag an IRS audit.
Tom Copeland – www.tomcopelandblog.com
Image credit: https://www.pinterest.com/pin/412572015863354301/
