Tax Deduction Time-Space%

[tlcmaguire]

Im helping my wife with the bookkeeping and finance of the daycare.

We are using 100% of all the rooms in the house. The Garage and one side of the house is off limits. that would only be maybe 10-15% of the Total LOT size.
But i believe the % write off is based on House/Living space. Correct?

Our hours are 7am-6pm. so 11 hours a day x 5 days a week. 55 hours a week. 55/168 hr per week. that is almost 33% (0.327)

Would i just use that to deduct 33% off my Mortgage and all the bills? Say i pay $20,000 in Mortgage.

Lets say Income for year 1 is 40,000. I would deduct $6,600 (mortgage) then 33% off all the Bills? Lets say another 12,000 in Electric, Water, Food, etc.. So $3,960.

So the 40,000 - 6,600 - 3,960 = $29,440 would be our Adjusted Net? thats what we would pay SE on and Fed Income taxes?

We also have a mini van that has a $450 mo payment and are paying Business Car ins on that. We have 3 cars so this can be 100% dedicated to the Biz. Would like to keep it easy and write the whole minivan off.

One other question i see a lot of post about Time-Percents were people are trying to Deduct time for Mowing the Lawn, and a ton of other things.... WHY??

Dont you already get enough deduction? is there a Max on Deductions? Is it worth to nit-pick 2 hours a month of Duct cleaning, Extra watering etc? Does that time go to the Total Day care hours? So instead of 33%... People are trying to get that upto 35...40...50%? is that the goal of keeping all that Time-Space %?

Thanks!!

[TomCopeland]

Time-Space%

You must count up the square footage of all the rooms that you use on a regular basis and divide by the total square feet of the home. Regular use means using it for your business about 2-3 times per week. You must include the garage as part of your home and the one side of your home that you don't use as part of the home as well.

You can count the garage as regularly used if you store items that are used for your business (tools, garbage can, lawn mower, etc.).

So, you don't have a space % of 100% because you do have rooms that are not used for your business. Recalculate this and let me know what you come up with.

Your time % calculation is okay, but did you include hours you spent on business activities in your home when children were not present (cleaning, meal preparation, activity preparation, record keeping, etc.)? You should count hours on activities that you wouldn't be doing if you weren't in business. Since you would always be mowing the lawn, don't count hours doing this, or other normal household chores.

You want to count all of these hours because it will increase your time-space% and increase your deductions. There is no maximum on the amount of deductions you can claim, although you don't want to be showing loses on a regular basis.

You don't use your time-space% on your mortgage. You use it on your mortgage interest and you use it when depreciating your home over 39 years.

You must claim car expenses based on either using the standard mileage rate or an actual expenses method. In either case, you must track all the business miles (trips that are primarily for business) and divide by the total number of miles driven. If the mini van is used 100% for business, and you use the actual expenses method, you can deduct 100% of all expenses, but not 100% of the car loan payment. Instead, claim 100% of the car loan interest and depreciate the car over 5 years. You can use the 50% bonus depreciation rule to depreciate it faster.

[tlcmaguire]

Thanks Tom! So i think i might look for a local CPA that deals with Daycares. would be be good advice?

I did my own books for my Computer Consulting Biz but since i loss or broke even, it was easy. And the expenses were limited.

My Mortgage is Interest only right now. So i think either way on my Taxes i deduct all of the interest. (Correct?)

Ok yes the Garage and the side "off limits" to the kids does hold the lawn mower and tools. So basically our WHOLE Home / Property is being used. Would this be 100%... for 55 hours out of 168 in a week for 33% of the Time? Plus we add in all the Prep time and other work we do when kids are not here... So that would put that to 65-70 hours a week. 70 hours would be 41% of the week. So then i would use that to Deduct 41% of Electric cost, etc Right?

I think my lucky with my 40 hour a week day job!! you DCM/ Stay at home moms put in a lot of hours!!

[TomCopeland]

time-space %

Your 41% calculation is correct. You would deduct 41% of your mortgage interest, utilities, house insurance, house repairs, property tax, and house depreciation.