Posted by ICCRR in CCR&R Blog on 2/27/2020

As a home child care provider there are many things you need for tax time. You are a business and will need to file taxes every year. This can be a very difficult time for many and being prepared, talking to your accountant and doing some research will help you tremendously. In time this should become a habit and will be part of your regular routine.

Time-Space Percentage

This formula is used to determine the business portion of your child care expenses that are used for both business and personal reasons. Use this formula on shared expenses like utilities, property tax, house insurance, household repairs, fences, computers, toys, cleaning supplies and so on.

Time percent-calculate the number of hours your home is used for business.

  • 10 hours per day caring for children is 50 hours each week totaling 2600 hours each year
  • 10 hours each week cleaning, preparing, etc. (Time used when children are not in care) totals 520 each year
  • Totaling 3120 hours each year divided by 8760 hours in a normal year equals 35.6% Time

Space percent-number of square feet of home that is regularly used for business

  • A room is counted as regularly used if you use it 2 or more times per week: kitchen, bathroom, laundry room, bedrooms for naps, living room, etc.
  • 2000 square feet used regularly divided by 2500 total square feet of home equals 80% Space

Time-Space percentage

  • 35.6% Time X 80% Space = 28.5%

Examples

  • $50 on toy purchased for shared expense = $14.25 is Time-Space business deduction
  • $60 for a pair of jeans = 0 deduction (can’t deduct personal items)
  • $75 on art supplies for 100% child care activity = $75 deduction

Quiz Question: Should I include the space of my garage in the total square feet of my home?
Yes, most providers use this space for regular use for their business. Some examples: garbage can, hose, cots, bikes, outdoor toys, helmets, car, etc.

Common Deductions

All items that are necessary for child care can be deducted.

  • Outdoors: lawn mower, rake, hose, trees, fences, paint, siding - anything that you use to take care of yard
  • Garage/basement: tools, holiday items, washer, dryer, grill, etc.
  • Office: computer, printer, paper, pens, desk, chair, etc.
  • Household: all kitchen cooking items, garbage bags, paper products, food storage containers, table, chairs, cups, curtains, carpet, furniture, bookcase, pictures on walls, TV, soap, toilet paper, etc.

Any item is deductible if is it used in the business.

Quiz Question: Can I deduct the cost of having someone plow my driveway?
Yes, it is necessary for your business. It would be Time-Space% and would be considered repairs and maintenance.

Car Expenses

A trip can be claimed as a business expense if the primary reason is for child care.

  • 2 ways to claim car expenses
    • Standard Mileage - for 2019 it is $0.58 per mile
    • Actual Expenses - can claim the business percent of expenses, this is calculated by dividing the numbers of business miles by the total number of miles driven
      • Example - 1,000 business miles divided by 10,000 actual miles=10%

Always keep good records to prove it was a business trip.

Quiz Question: A provider goes to the store to purchase food both personally and for business, can this trip be deducted?
If the main reason is for the business you can claim the trip, which means at least 51% is business-related. If more money is spent on child care food than personal then you may claim it as an expense.

Recordkeeping

Recordkeeping is a very important part of any business. As a self-employed taxpayer, you have to report your income and expenses to the IRS every year. Having proper records is very helpful.

  • Income - track all income you receive: state pay, self-pay, grants, CACFP, etc.
  • Expenses - save receipts for at least three years
  • Deductions
    • Is it deductible? Is it a necessary expense?
    • How much is deductible? 100% business or a shared expense?
    • Depreciation? Less than $500-all in one year, more than $500-depreciate?
  • Save all receipts
  • Keep a record of all meals and snacks served
  • Track all hours you work in your home

Quiz Question: If I go to the park and do my paperwork there while I am enjoying the evening, may I count those as hours worked?
No, you must be in your home or on your property to count any hours spent on business activities.

For some more information on taxes, insurance, marketing, policies and contracts go to Tom Copeland's website, here you will find many resources and handouts that will help you along the way. Your Child Care Consultant is also a great resource for questions you may have regarding your business. Connect with your Child Care Consultant here.

 

Tags: taxes , time-space percentage , common deductions , car expenses , recordkeeping , Tom Copeland

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