Should I Count My Shed in My Time-Space %?

The more spaces in your home that you use in your family child care business, the lower your taxes. That’s because space is part of a formula called the Time-Space Percentage that you will use to determine how much of your house expenses you can claim as a business deduction.

Your house expenses include property tax, mortgage interest, rent, utilities, house insurance, house repairs and house depreciation. Because this represents thousands and thousands of dollars, you want your Time-Space Percentage to be as high as possible.

You should count space by looking at each room in your home separately. If you use a room “regularly” for your business (at least two-three times per week), count all the square feet in the room as business space.

Outdoor Space

Don’t count open, outdoor spaces as part of your home. This includes, lawn, driveway, outdoor play areas, patios, etc. Do count decks and porches as they are attached to your home.

Many family child care providers have separate structures that they use in their business. These include a detached garage, children’s playroom, shed, barn, and greenhouse. You must always include a detached garage as part of your home. (So says the IRS Child Care Audit Technique Guide. The Guide also says you must count your basement as part of your home.)

Most providers can say they use their garage regularly for their business because that’s where they store business items (outdoor toys, bicycles, cribs, supplies, etc.) as well as other items used in their business (garbage can, garden tools, snow shovel, garden hose, broom, etc.)

I wouldn’t count any other separate structure as part of the home unless it’s a playroom for children. The reason is this: If you start counting sheds and greenhouses as part of the home, you may be able to say that they are regularly used for your business. So far, so good. However, when you sell your home you will have to pay capital gains tax on the profit associated with the sale of the separate structure!

You don’t want to have to deal with calculating (or paying!) this tax when you sell your home, even if the tax may be small. It’s a complication you should avoid.

Note: If you have an exclusive use room(s) in your home, the more space you count as part of your home (shed, etc.) the lower your Time-Space Percentage will be! Another reason not to count these spaces. The IRS has, to my knowledge, never told providers they should be counting separate structures (other than the garage) as part of their home. The issue is not addressed in any of their publications. So, I say to keep it simple and only count garages and children’s playrooms.

You can deduct the business portion of the cost of a shed or other outdoor structure that you use for your business.

Tom Copeland – www.tomcopelandblog.com

Image credit: https://commons.wikimedia.org/wiki/File:Lifetime_Storage_Shed.jpg

For more information about the Time-Space Percentage, see my book Family Child Care Record Keeping Guide.