Understanding Your Time/Space Formula

PART ONE- SPACE

In order to determine exactly what percent of your indirect household expenses can be deducted as a business expense, you have to determine th portion of your home used for business purposes as well as the total number of hours spent related to the daycare business.

To determine your space, you will need to measure your home and create a floor plan. It is best to physically go room by room through your house. Be sure to measure each room including closets and record each measurement on a piece of paper. When you have all the numbers, sit down and draw a floor plan filling in the appropriate measurements for each room in your house, each stairway, and each closet.

Once you arrive at the total square feet of available space in your home, you will need to allocate space into three categories. It may help to use a colored pen or marker to identify each area. Be sure to save this floor plan with your tax documents and revise it each year or as space use is changed.

1. EXCLUSIVE BUSINESS USE- This area must be used only for your daycare business. No other activity can take place in this room regardless of the time of day.

2. EXCLUSIVE PERSONAL USE- This is any space in your home which is not in any way used by the daycare business. This space is just used by you and your family.

3. MIXED USE- Rooms that are used by your family and by your daycare on a regular basis are considered mixed use. With proper documentation, each room in your home could become mixed use which would allow you to maximize your tax benefits.

You should record directly on your floor plan the total square feet in your home, the total square feet used exclusively for daycare business, the total area which qualifies as exclusive personal use and the total mixed use space.

By dividing the total mixed use space by the total square feet in your home, you will arrive at one component of determining your business percent for allowable deductions. An example is listed below:

1398 Square feet of mixed use divided by 1728 Square feet in the home = .809027 or 80.90% of home being used for daycare related purposes.

Check back next week for Part Two in this Series!

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