TIME/SPACE
PERCENTAGE - 2002
By Sharon Riley
Accurately
figuring your Time/Space will save you money! One dollar saved
now is worth more than $1 saved next year because of inflation.
But you have to have a method. Don't just pick 50% or any other
percentage. Why? Because you can't defend your method in an audit.
It's arbitrary based on no reasoning. In an audit you have to
be able to say, "I did this because of this and after this
calculation, the total was this." That's very important!
The method you use must be logical, reasonable, obvious, and simple!
If your
SPACE is 100% and your time is (3776 hours /8760 hours) Then your
Time/Space percentage is 43.11%
SPACE
There are
two elements of Time/Space, TIME and SPACE. Please review my post
on TIME (below).
As for
SPACE, almost all of you use 100% of your space. A space must
be used regularly for DC to be deducted. It does NOT need to be
used EXCLUSIVELY to be deducted. You cook and store food in the
kitchen. Even if you don't wash DCKs clothes, you do DC linens
and bedclothes in the laundry room. You receive parents and interview
in the living room. You store toys in most of the bedrooms. All
bathrooms are available for DC clients. You do your lesson planning
in your bedroom. You may split up DCKs for naps into all bedrooms.
You store DC toys all over the house. See??? You are using 100%
of your space.
If there
is a room you NEVER use for DC, like a teenage child's bedroom,
don't include that in the shared space. If that room is 12 x 12
= 144 sq ft, and your house is 1600 sq ft then your space would
be (1600 - 144 = 1456 sq ft.) / 1600 = .91 = 91%. Your Time/Space
would be .91 x ((3776 hours /8760 hours) = .4311) = .3923 = 39.23%.
If you
have established an EXCLUSIVE DC room, it markedly increases your
Time/Space percentage. That room, and it's attendant cost, are
deducted 24/7 (24 hours a day, 7 days a week). BUT, it must be
set up for DC so that it is, essentially useless to your family.
That's not as difficult as it sounds. A room with child furniture,
toys and decorations can't be used as a family room. If your children
use it as a play room after hours, it's not exclusive use. If
you have such a room, the calculation is explained below.
You are
now required to deduct all the depreciation ALLOWED on your house
for the daycare. It is no longer an option. When you sell your
house, you will be charged capital gains tax on the GAIN attributable
to the depreciation allowed, at the long term capital gain rate
in effect at the time you sell. So, if you have deducted $2000
in depreciation on your house, you will pay $400 in Long Term
Capital Gains Tax at today's rate. That's not so bad.
If you
DON'T deduct depreciation allowed you could pay as much as 30.3%
tax on that missing deduction! What kind of sense does that make?
Remember,
if you don't depreciate your house, the IRS can input depreciation
anyway! If that happens, you haven't gotten the benefit of the
deduction and, upon selling the house, have been charged for the
deduction! Not a good thing, right?? So, use your depreciation
deduction to the extent allowed.
TIME
You all
put in more time that just the hours you are caring for children.
However, only time you spend during child care hours, OR ON YOUR
PROPERTY counts! Your time at the grocery store does NOT count.
Time varies with each individual person. NOTHING is typical. Here's
how I advise my clients:
ROUTINE
TIMES
1. Childcare
time: You are open 7 -> 6 each day (for instance) for childcare.
You are open 5 days a week. and you took a 2 week vacation last
year. OK your equation is:
11 x 5
x 50 = 2750 hours
2. Each
morning you set up. Each evening you tear down. 15 minutes each.
(Accountants without this as a specialty never think of this one.)
OK?
.5 x 5
x 50 = 125
3. You
cook extra for the DCKs each night and pack it up to reheat for
their lunch each day.
.5 x 5
x 50 = 125
4. You
spend 3 hours cleaning after hours, to the quality a DC requires,
each week.
3 x 52
= 156
5. You
(or your husband) spends 2 hours , after hours or on weekends,
on exterior maintenance each week.
2 x 52
= 104
6. You
spend 1 hour each week, after hours, doing your record keeping.
1 x 52
= 52
7. You
spend 2 hours per week, after hours, lesson planning and pre cutting
craft projects.
2 x 50
= 100
8. You
spend 1 hours minimum, after hours, on the computer each night.
1 x 7 x
52 = 364
Do the
math for any other routine time. Notice the weeks and days can
change. You may be on the computer 1 hour EVERY night, including
weekends, including during your vacation. You can't cook for DCKs
every night. Weekends you have no children to feed. Now if you
DO work weekends, count those days as well. TIME IS NOT STANDARD.
It can flux wildly.
You should
keep a notebook for those infrequent portions of time like interviewing
and telephone time. You ALWAYS have some of that but not at a
steady rate.
Sharon Riley
NELSON
& RILEY
http://www.nelsonandriley.biz
813-886-9567 FAX 813-882-9454