How to Determine Your Space/Time Formula
Brigitte A. Thompson
© 2004
People who operate daycare
businesses in their homes can take advantage
of some unique benefits which include being able to reduce their
taxable
income by claiming a percentage of their mortgage interest, utility
bills
and other acceptable expenses as tax deductions.
Understanding the Space/Time
Formula is key to determining your indirect
business expenses and can generate some incredible tax savings!
SPACE
In order to determine
the first component of this formula, Space, it
should be explained that there are three different uses of space
in a
home daycare; Exclusive Business Use, Exclusive Personal Use,
and Mixed
Use.
Exclusive Business Use
areas consist of space occupied only for daycare
business purposes. No other activity can take place in this area.
Exclusive Personal Use
is the space in your home that is not used at any
point for business purposes. This area is reserved exclusively
for your
personal use.
Mixed Use is the most
common application for a home daycare business.
These are areas routinely used for both personal and business
reasons.
Measure your entire home
and list the dimensions on a floor plan.
Indicate the various uses of space in your home by coding each
with a
color. Keep this finished floor plan with your tax records and
be sure
to revise it as space use changes.
TIME
Time is the second component
of this formula and includes the hours your
business is open as well as time devoted to business training
and
planning. A written record must be kept to document this information
and all time recorded must be spent within your home to qualify.
It is important that you
make recording time a regular part of your day.
The more time that you spend related to your business, the higher
your
deductions will become!
On your time calendar
you can record time spent caring for children, after hours
contact with parents, time spent setting up your
daycare in
the morning and cleaning up at night, activity planning, meal
planning,
interviewing perspective families, time spent on the internet
for
business purposes, and recordkeeping.
Unfortunately, time can not be counted twice. If you work on
meal
planning while your daycare children are napping, that time has
already
been accounted for. To maximize your time for tax purposes, these
activities must take place outside of your regular business hours.
By combining these numbers you will arrive at your unique Space/Time
Formula which will help reduce your taxable income!
All information
is based on the current federal tax laws of the United
States. Since these laws are subject to change, neither the author
nor
BusyParentsOnline.com assume liability for modifications that
occur after
the creation of this work. Every effort has been made to ensure
this information is as accurate and complete as possible. These articles
contain general information for businesses and are offered as
an overview
of the law.
